Financing Outlook: SME Business Investment and Financing Outlook Survey, Wave VII (BDC Capital)

Summary

• The loan approval rate stood at 68% in December 2020 (with 42% fully authorized and 26% partially authorized), down from 77% in October 2020 as requests under review rose to 23%.p.8
• Looking ahead, 28% of SMEs plan to request financing in the next 12 months, with an average sought amount of $156K compared to $453K in October 2020.p.9
• Lines of credit remain the most requested financing facility at 51%, followed by trade credit at 26% and business credit cards at 23%.p.10
• Among businesses intending to request $500K or more, 68% plan to allocate funds toward growth-related projects and 47% toward machinery and equipment.p.11
• Optimism about loan access improved, with 55% believing it will be easy to obtain financing in the next 12 months, compared to 37% in October 2020.p.12
• Among SMEs not planning to seek financing, 59% stated they do not need money, while 20% do not want to add more debt or dilute company ownership.p.14

Key insights

1. 1. Financing demand remained slightly above historical levels, with 28% of SMEs requesting financing in the preceding 3 months.p.4
2. 2. Loan authorization rates dropped to 68% from 77% in October 2020, largely offset by an increase in applications still under review at 23%.p.8
3. 3. The average financing amount sought by SMEs dropped sharply from $453K in October 2020 to $156K in December 2020, with a median of $50K.p.9
4. 4. Demand for trade credit grew significantly to 26%, while term loans continued a downward trend at 20%.p.10
5. 5. A majority of 55% of SMEs expect financing to be easy to obtain over the next 12 months, up 18 percentage points from October 2020.p.12
6. 6. Insufficient sales or cash flow was the top reason SMEs expected difficulty securing financing (45%), followed by unstable industry conditions (30%).p.13
7. 7. Rejection rates were higher among businesses owned mostly by women (26%) and enterprises in arts, entertainment, and recreation (26%).p.8