Half of Small Firms Aren't Borrowing from Banks

The BDRC Continental SME Finance Monitor has revealed an eight percent increase - from 40% in Q3 of 2014 to 48% in Q1 of 2015 - in the number of SMEs that are now classed as “permanent non-borrowers” (PNBs).

This refers to business owners who have not used external finance in five years and have no plans to take on debt in the future.

The figures reveal a positive trend in the way small and medium businesses are managing their cash flow and leveraging their assets and debtors in order to avoid borrowing.

Indeed 72 percent of respondents stated that they intend to pay-down their existing debts and remain debt free, marking a significant trend that bodes ill for the UK's commercial banks.

Companies don’t want to take on debt, and that’s quite understandable, but in many cases they desperately need additional working capital to fuel growth. There is no joy in stagnation or even flat line sales and profits.

This too was reflected in the report, which highlighted that while they would prefer to remain debt free, 36 percent of SMEs would use external finance to grow their business.

There is no doubt that the recent economic downturn has resulted in the creation of more shrewd business owners. Difficulty in securing bank loans and a need to reduce costs has made us all much more aware of the importance of working capital in business.

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However, I believe companies still need to be more cognisant of what assets they have and ensuring that they maximize their use. A great analogy would be an airline - it has assets that fly people from A to B. But if that asset isn’t flying, then basically they are not making money.

Small business owners need to ensure that their assets are flying at all times. 

One of the fastest and easiest ways to get an asset working is to accelerate cash flow through receivables.

A business can literally inject serious working capital into their growth plans without taking on a single penny of debt - financing that is 100% off-balance-sheet funding. Financing that will also grow as the user grows will add another dimension to the growth opportunity.

It is unfortunate to see that, apart from a brief insight into crowd funding, the report did not provide a greater insight into the secondary financing market, especially considering the huge growth it has made in recent years, and the means by which businesses plan to sustain themselves and facilitate growth over the coming years.

Nonetheless we should be very optimistic about the shift in business attitudes towards debt and their far reaching implications for the economy.