SMEs to step up borrowing in 2017

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Small and medium-sized enterprises (SMEs) are set to borrow more money this year, new research suggests.

According to figures from Zurich, SMEs borrowed an average of £34,375 in 2016, reports.

However, this year's figure is set to come to around £41,770 - an increase of 22 per cent.

This means that if a comparable number of SMEs secure loans this year, the overall level of lending to these firms could exceed the £50 billion mark.

Anne Griffiths, head of SME proposition at Zurich, described £50 billion in borrowed money as an "enormous sum".

As a result, she believes SMEs that take out loans should manage their finances and wider operations extremely carefully.

"In uncertain times like these, businesses must make sure they have a solid business plan and support in place to service their loans while staying profitable," Ms Griffiths commented.

’‘Borrowing can often be indicative of confidence, and increased investment in talent, equipment and business premises for growth may be one of the most encouraging economic indicators of all."

Ms Griffiths added that while the business landscape "appears rife with uncertainty", SMEs have established themselves as the "building blocks of this economy".

This, she said, means that as long as they build themselves sensibly, sustainably and have adequate contingencies in place, then the UK can be "confident in the health of its economy".

According to the Zurich figures, 38 per cent of SMEs plan to borrow at least £100,000 in the coming year.

Meanwhile, 25 per cent were found to be intending to borrow more than £250,000.

Two per cent - about one in 50 SMEs - are looking at borrowing at least £1 million. 

Many smaller businesses are using aspects of their own firms as security for their loans.

Zurich revealed that 12 per cent have taken out a loan against their commercial premises, while nine per cent have done so against their firm's equipment and 14 per cent have used invoices and equity stakes to secure funding.

Others looked elsewhere for collateral, with 12 per cent securing a loan against their current home, and five per cent using assets owned by their friends and family.

Interestingly, the figures showed that some SMEs that plan to borrow this year have done so many times before.

Nearly a third of those polled said they had taken out loans in the last decade. Of these, 18 per cent said they had taken out a single loan during this period.

However, five per cent of them had borrowed on at least five occasions.

Nevertheless, much of the funding is going to SMEs on a seemingly strong financial footing.

Indeed, four-fifths of those who said they have taken out at least five loans over the last ten years were found to have net revenues of £1 million or more.

Similarly, figures showed that nearly two-fifths had net revenues of at least £10 million.

Zurich added that 65 per cent of SMEs did not borrow at all in 2016, while a similar proportion are not planning to do this year. Some 55 per cent of respondents had not taken out a loan throughout the last decade.