Bootstrapped businesses performing at similar rate to funded companies

'Permanent non borrowing' small firms more profitable but less ambitious than small business counterparts which have raised external finance

Non-funded small and medium businesses dubbed ‘permanent non-borrowers’ are performing at a similar level to small firms which have secured external finance, the latest BDRC SME Finance Monitor has reported.

Defined as small companies which haven’t used and haven’t applied for external funding, the UK’s permanent non-borrowers – or PNBs – were found to be more profitable than funded businesses (81% as opposed to 76%) and were almost as likely to have grown their business in the past 12 months (38% compared to 42%).

Yet PNBs were reported to be less ambitious than small businesses with investment – only 37% plan to grow their business in the next year compared to 49% of “non-PNB”s – and were found to have introduced far fewer innovations (29% vs. 41%).

Overall small business performance, both bootstrapped and funded, is overwhelmingly positive. 80% of small firms reported making a profit in the second half of 2015 – the highest level seen to date by the monitor – and businesses are now more optimistic about the current economic climate; only 14% reported the economic climate as a “barrier” which is a marked increase on the 37% recorded in 2012.

The monitor report was conducted using 5,000 interviews with small and medium enterprises with up to 250 employees and turnover of less than £25m.

Shiona Davies, director at BDRC Continental, commented: “We have continued to see higher application success rates and general business optimism. Meanwhile, permanent non-borrowers are masking signs of increasing use of and demand for finance amongst the remaining 51% of small businesses.

“‘Permanent non-borrowers’ are an interesting group – our new analysis of this group shows them to be profitable, hold credit balances and almost as likely to have grown as their peers, yet they are less likely to be international, to have innovated or to plan to grow in the coming year. They appear to be doing well, but the question is, could they be doing even better through using external finance?”

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