More UK SMEs Reporting Growth as Economy Gathers Pace

More of Britain's smaller firms are growing and there is increasing optimism about the steadily improving economy, as they seek funding from a widening range of finance sources.

According to the SME Finance Monitor for the second quarter, compiled by researcher BDRC continental, 44% of small-and-medium sized enterprises (SMEs) used external finance in the three months to the end of June, up from 39% in the quarter before.

One in five SMEs now use alternative products such as grants and invoice finance, rather than the more traditional bank loans and overdraft, up from 15% in the first quarter.

Furthermore, 44% of all SMEs reported that they had grown in the past 12 months, up from 39% in the first quarter. Just over half of SMEs, 51%, expect to grow over the coming year, the highest proportion to date, though this will be driven by overseas rather than domestic markets.

During the second quarter, UK GDP growth accelerated to 0.6% as the economy's three main sectors - services, construction and manufacturing - all saw a decent rise in output.

"It is encouraging that the number of small and medium size businesses using finance has started to pick up again," said Anthony Browne, chief executive of the British Bankers' Association (BBA).

"The survey shows that business confidence in the economy remains the biggest obstacle to growth for British businesses but hopefully this will start to improve if the economic indicators continue to get better.

"If you run a business with a good business plan and want funding, our message is apply to your bank. Rates are at an all-time low so there should be no doubt that now is a good time for businesses to go and see their bank if they are looking to expand and want to borrow."

Three-quarters of SMEs still say they are "happy non-seekers of finance", according the SME Finance Monitor.

There are several government efforts to bring down the cost of credit for small businesses, with the biggest scheme being Funding for Lending (FLS).

Under FLS, banks are offered cheap loans by the Bank of England. The value of these discounted loans that banks can access is tied to their stock lending to the real economy of consumers and SMEs.

By reducing banks' funding costs, the BoE and government hopes FLS will improve the availability and affordability of credit for SMEs.

However, just 16% of SMEs surveyed in the BDRC report said such schemes make it more likely they would apply for finance, a fall from 20% when the question was first posed to them in the final quarter of 2012.

"Whilst awareness of the Funding for Lending Scheme has also increased, knowledge of other schemes available to help and support SMEs to access finance remained flat, which may mean that some SMEs are not as well equipped as they could be to take advantage of future opportunities," said Shiona Davies, director at BDRC Continental.