SME borrowing to top £50 billion in 2017

Small businesses in the UK are set to borrow more than £50 billion this year, marking a 22% year on year rise according to new research.

The Zurich SME Risk Index suggests the figures are a mark of increased business confidence, with the average firm planning to borrow nearly £42,000 in 2017.

That compares favourably to the figure from 2016, when borrowing averaged £34,375, and it is predicted that if borrowing remains consistent, levels will top £50 billion.

More than 1,000 small business owners were questioned as part of the research and found that of those intending to borrow, 38% were planning to take £100,000 or more.

A quarter want to borrow more than £250,000 while 2% – equating to one in 50 firms – are planning to borrow £1 million or more.

The most common method of borrowing in 2016 was for SME owners to secure loans against their business – 12% took out a loan against their commercial premises and 9% against their firm’s equipment.

Meanwhile 14% of firms used business invoices and equity stakes while 12% secured a loan against their own home and 5% did so against collateral belonging to family or friends.

These methods are not without substantial risk if something goes wrong, which is why it can be beneficial for companies facing financial shortfall or debts to consider alternative finance options.

Of the 30% who reported that they had taken out a loan in the past 10 years, three in every five revealed they had taken out more than one loan.

One in six meanwhile said they had taken out five or more loans, suggested a habit of persistent borrowing.

However, the majority of firms are borrowing money in a sustainable fashion – 78% of those who took out five or more loans had a business with a net revenue of £1 million or more.

Nearly two thirds of firms did not borrow finances in 2016, but with uncertainty surrounding the UK economy, there remains a need to proceed with a certain degree of caution.

Any business with concerns over its finances should have contingency plans in place to safeguard against its future, especially if operating in sectors that are prone to shocks.

By Phil Smith

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