Fewer small businesses are now borrowing money according to The British Business Bank’s second annual Nations and Regions Tracker, published yesterday (23 November 2022).
Does that make borrowing a bad idea in 2023? Let's have a closer look at the numbers.
38% of smaller businesses were using external finance in the second quarter of 2022, down from 45% a year earlier, driven mainly by repayment of Bounce Back Loans and CBILS.
Overdrafts, loans, asset finance and credit cards remain the most widely used products, with overdrafts in particular seeing a resurgence. The deteriorating economic picture and increase in input costs is, unsurprisingly, creating the need for more working capital for many.
Asset finance is the most used ‘alternative’ finance product (and, incidentally, the best way of acquiring vehicles and equipment).
The way small businesses are financing themselves is also becoming more varied. The proportion of businesses now only using non-government-backed loans has dropped 15 percentage points to 22%. Indeed, the proportion of businesses using a blend of government-backed loans, grants and traditional finance has increased from 21% to 23%.
The report also gives insight into the appetite to apply for finance, and the likelihood of being turned down.
Nationally, nearly a quarter (22%) of businesses in need of finance did not apply in 2020-21 and 11% of applications were declined.
The report found that businesses in the most deprived areas of the UK* are more open to using finance and report higher levels of ambition for growth. Nearly half (49%) of businesses in the most deprived areas have a long-term ambition to be a significantly larger business, compared to 40% elsewhere. They are also more willing to use external finance to grow (36% vs.33%).
There are several useful take-outs from this data for business owners planning their approach to 2023.
If there is anything in this update that affects you, we will be pleased to put you in touch with one of our regional funding experts for advice.