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Statistical bulletin: Access to Finance, 2007 and 2010 This product is designated as National Statistics

Released: 28 October 2011 Download PDF

Key points

  • 35 per cent of small and medium-sized businesses sought finance in 2007. This rose to 42 per cent in 2010.
  • For those seeking loan finance, around three-quarters of businesses approached banks.
  • In 2007, successful loan finance approaches to banks were around 90 per cent. This fell to 65 per cent in 2010.
  • Five out of every six businesses that expect to need future finance anticipate seeking it from banks.

Survey overview

This release reports on the results of a survey into small and medium-sized businesses needs for finance and how easy or difficult they found it to obtain. It covers 2007 and 2010. It was the first survey of its type conducted across 20 European Union (EU) member countries. The survey followed Commission Regulation 97/2009, using a common core questionnaire.  The UK version of the questionnaire is available (238.5 Kb Pdf) .

The survey results from the 20 EU member countries, published on 3 October 2011, can be found on the Eurostat website.

The survey covered a cohort of independent small and medium-sized businesses (otherwise known as SMEs - small and medium-sized enterprises). There were 77,100 businesses in scope of the survey.

The results from this survey necessarily only covered business that were still trading (with 10 or more employees) when the survey was undertaken and the results in this release relate to this group. This excluded 27,300 businesses (those that had ceased to exist by 2010 or whose employment had dropped below 10). They may have had different needs for finance from those businesses in the cohort and different experiences in trying to obtain it.

The sample for this survey was selected from the following standard industrial classification (SIC) sections:

B to E                         - Industry

F                                 - Construction

G, H, I, L and N          - Selected services

                                - Information and communication services

M                                - Professional, scientific and technical activities

Section K (financial services) was excluded from the survey.

The following business growth types were covered in the survey:

  • Gazelles - Businesses born in 2003 or 2004 that experienced 72.8% or more employment growth between 2005 and 2008 (i.e. a compound  growth rate of 20% per annum over three years).

  • Other high growth businesses - Businesses born before 2003 that experienced 72.8% or more employment growth between 2005 and 2008.

  • Other businesses - All other businesses in scope of this survey.

It is also relevant to note that, because this survey was based on a cohort, the population is necessarily ageing through time. Where questions were asked about 2007 and 2010, as in most of the survey, some of the differences between the two periods might reflect the increased maturity of the businesses being surveyed. This point perhaps particularly concerns the gazelles, which would have been three or four years old in 2007 but by 2010 would have existed for six or seven years. We cannot know what answers a further population of gazelles, three or four years old in 2010, would have given.

Coverage of the survey

Number of
   businesses
   
All businesses in standard industrial classification (SIC) sections B to M, excluding K  1,510,100
   
Independent businesses1 in SIC sections B to M, excluding K 860,800
Of which:
Fewer than 10 employees in 2005, and business still active in 2008 753,400
More than 249 employees in 2005, and business still active in 2008 3,000
Therefore: 
Businesses in these categories with 10-249 employees in 2005, and business still active in 2008 104,400
Of which: Not existing by 2010, or had fallen to fewer than 10 employees 27,300
Therefore: In the cohort for the survey 77,100
   

Table notes:

  1. Independent businesses are those that are not subsidiaries of other businesses.

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Structure of the cohort

Table 1 (28.5 Kb Excel sheet)

More than half the businesses in the cohort were classified to selected services SIC sections G, H, I, L and N. This is a broad classification group, covering activities such as wholesaling and retailing, hotels and restaurants, and real estate activities. Around two-thirds of all gazelles (younger, fast-growing, businesses) were in this category, compared with only around half of the slower-growing businesses. More than one fifth of the slower-growing businesses over the period covered by this survey were in SIC sections B to E (Industry). Less than one tenth of the gazelles were in this category. 

Structure of the cohort

Structure of the cohort
Source: Office for National Statistics

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Finance sought

Table 2 (30.5 Kb Excel sheet) and Table 3 (31.5 Kb Excel sheet)

In total around 42 per cent of the businesses surveyed are estimated to have sought one or more sources of finance in 2010, up from 35 per cent in 2007. For all business growth types there was a greater tendency to have sought finance in 2010 than in 2007.

Finance sought: by business type

Finance sought: by business type
Source: Office for National Statistics

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The questionnaire asked businesses for details of any finance sought in three categories: loan finance, equity finance and other sources of finance (which, in practice turned out to be mostly drawing on an overdraft facility or leasing).

Types of finance sought

Types of finance sought
Source: Office for National Statistics

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Loan finance

Table 2 (30.5 Kb Excel sheet) , Table 3 (31.5 Kb Excel sheet) , Table 4 (32 Kb Excel sheet)  and Table 5 (33.5 Kb Excel sheet)

In total, around 22 per cent of the businesses covered by this survey (17,100 businesses) sought loan finance in 2007. This rose to 27 per cent (20,500 businesses) in 2010. 

There was little difference between the business growth types in their propensities to seek loan finance. A higher proportion of each type sought loan finance in 2010 than in 2007.

Loan finance sought: by business type

Loan finance sought: by business type
Source: Office for National Statistics

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By SIC grouping, section J was less likely than the other groupings to have sought loan finance, though its need for finance is estimated to have grown sharply between 2007 and 2010.

Loan finance sought: by standard industrial classification (SIC) sections

Loan finance sought: by standard industrial classification (SIC) sections
Source: Office for National Statistics

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Sources of loan finance

Table 4 (32 Kb Excel sheet) and Table 5 (33.5 Kb Excel sheet)

Respondents were asked to state from which sources they had sought loan finance, and how successful these approaches had been.   

Not surprisingly, the most common source from which loan finance was sought was banks (accounting for around three quarters of all approaches for loan finance in both 2007 and 2010). In both years, more than twice as many businesses sought loan finance from banks as from the next most common source, which was “other sources” (loan institutions that were not banks). The sources of finance generally changed little between 2007 and 2010, although there was a greater tendency in 2010 to seek finance from the owners or directors of the business, 19 per cent are estimated to have done so in 2007 but this rose to 28 per cent in 2010.

The sources from which gazelles sought finance, and their chances of being successful, were a bit different from these figures, perhaps in part because they are by definition younger businesses with a shorter track record. Gazelles were appreciably more likely than other businesses to seek finance from their owners or directors, 36 per cent of those seeking loan finance did so in 2007 and 50 per cent in 2010. Loan finance was also sought by gazelles from family and friends, 13 per cent of them did so in 2007 and 16 per cent in 2010: both figures are around twice as large as for the cohort as a whole.

Approaches for loan finance: by source and business type

Approaches for loan finance: by source and business type
Source: Office for National Statistics

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Loan finance success rates

Table 4 (32 Kb Excel sheet) and Table 5 (33.5 Kb Excel sheet)

The success rate for loan finance from banks fell heavily between 2007 and 2010. For all businesses, it was almost 90 per cent in 2007 (74 per cent of businesses had sought loan finance from a bank, 65 per cent were successful). In 2010 that proportion had fallen to around 65 per cent (77 per cent sought, but only 49 per cent were successful). For gazelles, this change was even more marked. A success rate of around 90 per cent in 2007 fell to a rate of 50 per cent in 2010. The success ratio for “other sources”, which had been close to 95 per cent in 2007, also fell, to nearer 80 per cent both for all businesses covered by the survey and for gazelles alone.

The reductions in success rates may be one reason why each business that sought loan finance on average made just over one and a third attempts in 2007 and just over one and a half in 2010.

As measured, there appear to be increases in the success rates of approaches for loan finance to employees of the business; to family or friends; and to other businesses. However, these were rarely used as potential sources of loan finance. In 2007, employees and other businesses each accounted for around 2 per cent of the loan finance attempts made; family or friends for 6 per cent. Given this, the estimates of success rates for these categories are based on few businesses and hence are not reliable. It may be though that the slightly higher level of approaches to these sources in 2010 than in 2007 reflected increased difficulty in obtaining loan finance from elsewhere.

 

Loan finance success rates for all businesses: by source

Loan finance success rates for all businesses: by source
Source: Office for National Statistics

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Loan finance success rates for gazelles: by source

Loan finance success rates for gazelles: by source
Source: Office for National Statistics

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Loan finance success rates for other high growth businesses: by source

Loan finance success rates for other high growth businesses: by source
Source: Office for National Statistics

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Loan finance success rates for other businesses: by source

Loan finance success rates for other businesses: by source
Source: Office for National Statistics

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Most SIC sections when sourcing loan finance ( table 5 (33.5 Kb Excel sheet) ), showed a similar pattern to each other. The exception was SIC section J, where businesses in both years had a greater propensity than other businesses to seek non-institutional finance.

Businesses in SIC section J (information and communication services) who sought loan finance made on average just over one and a half attempts in 2007 and just over two attempts in 2010, appreciably higher than the figures for the other sections. We cannot be certain if this was because more of their attempts were unsuccessful, or because they had multiple requirements for finance. However, between 2007 and 2010, the success ratio fell sharply for every loan source for businesses within this SIC section. Loans from owners and directors of the business held up best, but elsewhere fewer than half the approaches in 2010 resulted in full success (some were partially successful, either perhaps in not obtaining the full amount or in the terms of the loan being less favourable than hoped).

Loan finance success rates from banks: by standard industrial classification (SIC) sections and business type

Loan finance success rates from banks: by standard industrial classification (SIC) sections and business type
Source: Office for National Statistics

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Success rates for a number of other European countries have also been measured. The results are brought together by Eurostat here.

For every participating country, businesses were less successful in obtaining finance from banks in 2010 than in 2007. For a few countries, the drop was slight: for example, in Finland 98 per cent of businesses were successful in 2007 and 96 per cent in 2010 (a drop of two percentage points). In Sweden, a success rate of 84 per cent in the earlier year fell to 80 per cent in 2010. More commonly, however, the fall was rather more marked. In comparison to the reduction in the UK of 24 percentage points (from 88 per cent success to 65 per cent), the success rate in Germany fell by 9 percentage points between the two years; in France by 11 percentage points; and in Italy by 8 percentage points. In Ireland, however, the drop was 44 percentage points (from 97 per cent successful in 2007 to 53 per cent in 2010).

Loan finance guarantees

Table 6 (29 Kb Excel sheet)

In many cases, lenders require, as security, that an individual or body provides a guarantee for a loan, in case of default. Respondents were asked whether guarantees had been required for loans obtained and, if so, who was the guarantor.

In both 2007 and 2010 it is estimated that a guarantee was required from 36 per cent of the businesses covered by this survey that obtained loan finance.

An appreciably higher proportion of gazelles were required to provide guarantees for loans obtained in 2007 than for loans obtained in 2010. This may be because this group of businesses would only have been three or four years old in the earlier period (for the purposes of this survey, gazelles are deemed to be businesses born in 2003 and 2004). By 2010 they would have had a longer track record. It may also be partly because gazelles were more likely in 2010 than in 2007 to have sought finance from their owners or directors and a guarantee is unlikely in those circumstances.

When there was a guarantee required, this was normally provided by the owners/directors of the business.

Gazelles used guarantee schemes fully or partially provided by the government to a much greater extent than did other businesses.

Businesses who required a guarantee: by business type

Businesses who required a guarantee: by business type
Source: Office for National Statistics

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Reasons for not being successful in obtaining loan finance

Table 7 (29.5 Kb Excel sheet)

Respondents who had been only partially successful or unsuccessful in obtaining loan finance were asked for their perception on why that had been. This was a detailed question, which meant there were few responses in some of the categories and not enough to give a reliable indication of differences between the sub-groups. 

Businesses that failed to get loan finance from a bank in 2007 tended to give a large number of reasons (an average of just over one and a half reasons per respondent, as against one and a fifth reasons in 2010). The most common reasons in each year were that the business had insufficient collateral or guarantee, or that it had a lack of own capital. There were also a variety of “other” reasons.

Reasons for other lenders not giving finance were more sparse than for the banks with no prominent reason in 2007, but a poor credit rating became the most notable reason for a lack of success in 2010.

There were not many cases where the lack of success in obtaining loan finance (from whatever source) was down to a refusal by the applicant business to accept the conditions offered. High interest rates were less of a bar in 2010 than in 2007. That is not surprising given that the Bank of England’s base rate was over 5 per cent throughout 2007 but 0.5 per cent through 2010 (these will not be the rates charged by commercial lenders, but is a sign of the downward pressure on interest rates generally over the period covered by this survey).

Reasons given by banks for loan finance applications not being successful

Reasons given by banks for loan finance applications not being successful
Source: Office for National Statistics

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Reasons for the choice of bank when applying for loan finance

Table 8 (28 Kb Excel sheet)

Respondents who had chosen to apply for loan finance from a bank were asked for their reasons for choosing that particular bank.

In every case, by far the most dominant reason was that the business was already a client of the bank. A local bank branch seems initially (that is, in 2007) to have been quite important to gazelles although by 2010 it seems to have been slightly less important for faster growing businesses (gazelles or other high growth businesses) than the others. A bank’s emphasis on smaller businesses seems to have affected the choice of a number of gazelles in 2007 but subsequently, and for other businesses, was of relatively little importance.

It should, however, be noted that new gazelles – that is, fast-growing businesses that were born in 2006 or 2007 – were not included in the sample which was a cohort of businesses, so it is difficult to be certain whether changes between 2007 and 2010 for the gazelles are due to changes in new, fast-growing, businesses’ perceptions of what is important or to the set of gazelles in the survey ageing through time.

Not surprisingly, the interest rate terms were also a factor in the choice, and were more important than any non-interest rate terms. Some businesses did though place stress on the bank’s reputation for good client relationships.

Reasons for the choice of bank when applying for loan finance: by business type

Reasons for the choice of bank when applying for loan finance: by business type
Source: Office for National Statistics

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Equity finance

Table 2 (30.5 Kb Excel sheet)  and Table 3 (31.5 Kb Excel sheet)

Equity finance refers to money or other assets given against shares, which confer part ownership of the business.

Respondents were asked whether they had tried to obtain equity finance in 2007 or 2010. In total, only 1 per cent had, and there were not enough respondents in this category to provide reliable analysis of the source from which businesses had sought the equity finance or how successful they had been in obtaining it.

Other sources of finance

Tables 9 (35 Kb Excel sheet) and Table 10 (36.5 Kb Excel sheet)

This covered a whole range of financing options. In total, 21 per cent of the businesses covered by the survey (some 16,100 businesses) sought these options in 2007 and 25 per cent (19,300 businesses) did so in 2010 (see table 2 (30.5 Kb Excel sheet) ).

Bank overdraft and credit line facilities (which are included here rather than bank finance, since they tend to be less formally arranged) were by far the most popular of the options covered. In both 2007 and 2010, around two-thirds of the businesses which had considered one or more of the “other financing” options, sought to use an overdraft or credit line facility. Leasing was the next popular with around one-third of businesses seeking this option in both 2007 and 2010. Trade credit was also a common choice with around a quarter of businesses in 2007 and a fifth in 2010 seeking this type of finance.

There was in general little change in the relative ranking of these options between 2007 and 2010.

Approaches for other finance: by source and business type

Approaches for other finance: by source and business type
Source: Office for National Statistics

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Similarly, there was little change in success rates. Although virtually all the businesses that sought it, managed to obtain a leasing facility in 2007, that fell back a bit in 2010 (though the success rate was still over 90 per cent). Businesses that sought an overdraft or credit line facility in 2007 was 94 per cent, but in 2010 that proportion reduced to 83 per cent.

Gazelles seem much less prone than other businesses to have used leasing as a means of finance in 2007 (15 per cent), though by 2010 their propensity to lease was close to the average of all businesses (30 per cent). Other high growth businesses on the other hand seemed to have used leasing to a considerable extent in the earlier year (60 per cent), although this fell to 41 per cent in 2010. Gazelles were more inclined than other businesses, in both 2007 (38 per cent) and 2010 (34 per cent), to have used factoring (the sale of debts at a discount to improve cash flow).

Other finance success rates for all businesses: by source

Other finance success rates for all businesses: by source
Source: Office for National Statistics

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Other finance success rates for gazelles: by source

Other finance success rates for gazelles: by source
Source: Office for National Statistics

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Other finance success rates for other high growth businesses: by source

Other finance success rates for other high growth businesses: by source
Source: Office for National Statistics

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Other finance success rates for other businesses: by source

Other finance success rates for other businesses: by source
Source: Office for National Statistics

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Perceptions of change in finance availability

Table 11 (55.5 Kb Excel sheet)

Respondents were asked for their perception of how various things had changed over the three years 2007 to 2010 and for their views on their likely needs for finance between 2010 and 2013.

Around three-quarters of all businesses felt that their financial situation had changed over the three-year period. Broadly equal numbers of the faster-growing businesses (gazelles and other high growth) felt that matters had become better or reported that their financial situation had worsened. However, the less fast-growing businesses reported some deterioration, with 42 per cent saying that their financial situation had worsened, against 28 per cent who said it had improved. There was more negativity about debt/turnover ratios, suggesting that businesses tended to be more indebted in recent periods than in 2007, when the economy was more robust.

Respondents were more negative about their experiences in trying to obtain finance than they were about the situation of their own businesses. Very few businesses felt that the terms and conditions of finance, the burden of obtaining it, or the willingness of the banks to lend, had become better over these three years. They saw particular deterioration in the burden or effort of obtaining finance and in the willingness of the banks to lend. Gazelles had a tendency to be more negative than other types of business.

 

Perceptions of change in finance availability

Perceptions of change in finance availability
Source: Office for National Statistics

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Future needs for finance

Table 12 (28 Kb Excel sheet) , Table 13 (29 Kb Excel sheet) and Table 14 (28 Kb Excel sheet)

Respondents were asked whether they were likely to need finance over the three year period from January 2011 to December 2013.  As shown in table 12 (28 Kb Excel sheet) , 42 per cent said that they would; 58 per cent that they would not. There was some indication that gazelles felt more likely to need finance than other businesses. The pattern of finance they foresaw was also slightly different.

These figures should be taken with some caution. Predictions are never easy and the future needs for finance will inevitably depend on economic and other conditions at the time and businesses changing expectations. In some cases, the expectations are rather different from experience in the past. For example, as shown in  table 2 (30.5 Kb Excel sheet) , only 1 per cent of businesses in both 2007 and 2010 sought equity finance, yet it seems that an appreciably greater number anticipate a need for it over the next few years.

Businesses were also asked where they expected to obtain the finance from, and why they were likely to need it. Respondents could mark up to five categories. These were detailed questions, which meant there were few responses in some of the categories and not enough to give a reliable indication of differences between the sub-groups. 

Banks were clearly, and not surprisingly, seen as by far the most popular source for future finance, with five out of every six businesses that expect to need finance anticipating that they would seek it from this source. Around one-quarter would look to the owners/directors, to leasing companies or to other non-bank financial institutions. The other categories attracted little interest.

In general there was little difference between the various business growth types, allowing for the limited numbers of observations in these categories. Gazelles did, however, seem rather more likely than other businesses to be seeking finance through their owners/directors (36 per cent anticipated this) or through UK government bodies (19 per cent).

On what the finance would be used for ( table 14 (28 Kb Excel sheet) ), it was almost wholly either to maintain the business as a growing concern (59 per cent) or to grow the businesses domestic activities (52 per cent).

Gazelles and other high growth businesses were rather more likely than other businesses to anticipate needing the finance for growth and less likely to need it to maintain the business as a going concern.

Reasons for needing future finance: by business type

Reasons for needing future finance: by business type
Source: Office for National Statistics

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Limiting factors for business growth

Table 15 (29.5 Kb Excel sheet)

Finally, businesses were asked their view on the most important factors likely to limit the growth of their business between the date of the survey and December 2013. They were invited to select up to five answers. 

Very few businesses (3 per cent) said that they saw no constraints. Seven in every eight felt that the general economic outlook would be a limiting factor. Two-thirds of respondents mentioned price competition and small margins, and around half pointed to limited demand in the domestic market.

Although many felt that they would suffer from small margins, an appreciable group of businesses (around one-third) felt that the high cost of labour would be a difficulty for them.

The only other factors mentioned by more than one-sixth of the businesses in the survey were the regulatory framework; new entrants into the market; and the need to make investment in equipment and so on.

There were few appreciable differences between the various business growth types in the survey. However, gazelles were slightly more likely than others to mention as limiting factors the high cost of labour; small margins; and that they felt themselves unlikely to be able to get enough financing.

Limiting factors

Limiting factors
Source: Office for National Statistics

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Background notes

  1. Quality

    Sample design

    The sample design for the Access to Finance survey was produced with the aim of achieving similar coefficients of variation (CVs) for estimated proportions in the different strata of interest. These were the three business growth types (gazelles, other high growth businesses and other businesses) and five SIC sections: B to E, F, G to N (excluding J, K and M), J and M, giving a total of 15 strata. A simple random sample was drawn independently from each of the fifteen strata, with the size of the sample in each stratum optimised to achieve similar CVs. The variance of an estimated proportion is a function of the sample size, population size and the value of the proportion. As the values of these proportions were not known in advance, the same value was assumed for all strata. This resulted in sampling fractions which varied from 0.01 to 1, with the largest sampling fractions in the strata for gazelles.

    There was a response rate of 78 per cent.  After taking account of some responses that were not included, because for example employment in the business concerned had recently dropped below 10, these results are based 2,165 completed questionnaires.

    Sampling error

    The CV of an estimate is the ratio of the standard error of the estimate to the estimate itself and is expressed as a percentage. The majority of estimates provided here are either estimated proportions or the ratio of two estimates of counts. The CV for an estimated proportion increases as the estimated proportion decreases; hence very small estimated proportions have larger CVs. For estimates of proportions where the domain is the whole population (such as the proportion of businesses seeking loan finance in 2007 and 2010), the typical CVs are around 4 per cent. The exceptions are where the estimated proportion is very small. For example, the proportion of businesses seeking equity finance is 1 per cent, which has a CV of approximately 20 per cent. For estimates of the proportion of businesses seeking finance in domains of growth type, the CVs range from 3 per cent to 8 per cent.

    A number of the estimates provided are ratios of two estimates, for example, the percentage of those seeking loan finance who did so from owners/directors. When considering the whole population, the CVs range from approximately 5 per cent to approximately 40 per cent, depending on the year being considered and the estimated proportion. As expected, lower proportions yield larger CVs.

    The 95 per cent confidence interval for the percentage of businesses seeking loan finance from different sources has a margin of error of between 2 per cent and 6 per cent, depending on the source of finance. In cases where the success rates for seeking loan finance can be calculated, the 95 per cent confidence interval has a margin of error of between 5 per cent and 10 per cent, depending on the source of finance.

    The results showing the reasons given for being unsuccessful or partially successful in obtaining loan finance are very detailed. The typical margin of error on the estimated percentages can be large (of the order of 20 per cent), particularly for 2007 where the number seeking loan finance is smaller than in 2010. The CVs in both 2007 and 2010 are typically high (approximately 30 per cent, but they can be larger in 2007).

    Therefore, for detailed questions we advise caution in interpreting the results.

    Burden of the survey

    The questionnaires took on average around 25 minutes per respondent to complete.

  2. Release policy

    Details of the policy governing the release of new data are available from the Media Relations Office.

    National Statistics are produced to high professional standards set out in the Code of Practice for Official Statistics. They undergo regular quality assurance reviews to ensure that they meet customer needs. They are produced free from any political interference.

    © Crown copyright 2011.

    You may use or re-use this information (not including logos) free of charge in any format or medium, under the terms of the Open Government Licence. To view this licence, visit http://www.nationalarchives.gov.uk/doc/open-government-licence/ or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gsi.gov.uk

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  4. Contact details

    Stephen Curtis
    Financial Inquiries
    Financial.Inquiries@ons.gsi.gov.uk
    Telephone: +44 (0)1633 456626

  5. Details of the policy governing the release of new data are available by visiting www.statisticsauthority.gov.uk/assessment/code-of-practice/index.html or from the Media Relations Office email: media.relations@ons.gsi.gov.uk

Statistical contacts

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