Finance conditions improve for SMEs, but interest in borrowing remains muted

Ahead of the release of next month's data on the government's Funding for Lending scheme, EEF's survey for the third quarter of 2013 shows what it describes as "a welcome improvement in finance conditions for SMEs", but warns that "more needs to be done to get companies interested in using external finance again". Among its key findings, the survey shows: • A balance of just 1% of manufacturers reporting an increase in the overall cost of credit – the third consecutive record low for this survey • More small companies reporting the cost of new lines of borrowing falling rather than rising for the first time • A strong rise in the reported availability of new lines of borrowing, now in double digit positive territory and being driven by improved availability for SMEs • The proportion of companies reporting no need to borrow remains high at 52%, suggesting that many companies are not using external finance. In an additional survey question this quarter, manufacturers were asked what factors dissuaded them approaching their bank for finance over the past four years. While two thirds of companies reported no factor, 19% of companies said either the bank implied they would be unsuccessful or their previous experiences applying for finance dissuaded them. Commenting, EEF senior economist Andrew Johnson said the Funding for Lending scheme might be at last helping SMEs get credit on the right terms. He continued: "With stronger growth and a more positive outlook, the prospects for an investment recovery look better. But to get these investment plans over the line, we must get more companies using external finance again. We need a more dynamic and diverse funding environment where providers are competing hard to offer firms great deals to finance their investment."