More SMEs turning to secured funding: Banjo

The report found that 52 per cent of SMEs plan to leverage funding to achieve business goals over the next year.

Interestingly, a growing proportion of SMEs are looking at accessing secured finance this year, with this cohort growing from 45 per cent in early 2023 to 53 per cent this year.

Similarly, there was a significant reduction in SMEs that would use unsecured financing – falling to 19 per cent this year, down from 28 per cent in 2023.

The most likely industries to use secured funding in 2024 were construction, with 86 per cent responding that they would use secured financing, followed by healthcare and social assistance (85 per cent) and retail trade (85 per cent).

Speaking to The Adviser, Guy Callaghan, the chief executive of Banjo, said that the increase in SMEs planning to use secured funding was due to cost pressures, as secured loans typically carry a lower interest rate than unsecured loans.

He said: “Their number one concern when getting funding is price, so if they want to keep the price down, they have to go secured rather than unsecured.

“You can see in the SME Compass that more businesses are looking to cut costs this year rather than raise prices and getting a secured loan rather than an unsecured loan is one way of doing so.”

Indeed, the report revealed that only 34 per cent of SMEs plan to increase costs this year, compared to 47 per cent in early 2023.

According to the survey, 40 per cent of SMEs would be reducing costs this year to combat inflation, which was the top tactic among the respondents.

Of the SMEs that increased their prices due to inflation, almost two-thirds (61 per cent) said it was due to rising supplier costs, which was no change from 2023.

In 2023, 47.2 per cent of SMEs increased their prices for customers due to inflation, compared to 49.2 per cent in 2022, according to the survey.

The research also found that the use of bank loans had decreased since early 2023, with only 32 per cent of SMEs using banks for a loan (down from 36 per cent). Moreover, only 26 per cent of respondents said they would use a bank loan in the next 12 months.

Further, the report saw an increase in the number of SMEs using specialist commercial lenders, up to 12 per cent (compared to 9 per cent in 2023).

According to the report, 36 per cent of SMEs would use alternative commercial lenders in the future.

The SME Compass Report did find, however, that fewer SMEs would be looking to use a broker than in previous years. Finance broker usage decreased to only 24 per cent, compared to 29 per cent in 2023.

[Related: Fewer SMEs expect to use brokers this year, finds survey]