Statistics from BDRC Continental’s SME Finance Monitor shows that half of businesses applying for loans for the first time are turned down. The figure contrasts with the finding that a fifth of those reapplying for finance are rejected.

For the fourth quarter of 2012, some 41 per cent of SMEs reported using external finance, up slightly from the 40 per cent seen in the third quarter of the year and identical to the figure from the same period in 2011.

The use of external finance by SMEs with 0 and 1-9 employees was in line with results from Q4 2011, but for those with 10-49 staff the figure has dropped from 70 per cent to 65 per cent. SMEs with 50-249 employees posted a similar drop-off (75 per cent to 68 per cent).

Despite only 23 per cent of SMEs being aware of the government’s flagship finance initiative, the Funding for Lending Scheme, it is one of the most recognised initiatives.

Of the businesses surveyed, 52 per cent were aware of finance initiatives, increasing in size of SME from 51 per cent of those with 0 employees to 71 per cent of those with 50-249 employees.

Alongside the Funding for Lending Scheme, awareness of business mentors stands at 21 per cent, the Business Growth Fund at 14 per cent and the appeals process (which has been in place since April 2011) at 10 per cent.

Some 20 per cent of all SMEs interviewed (900,000 businesses) in the fourth quarter of 2012 believe that initiatives such as the Funding for Lending Scheme make applying for funding more likely.

More on government funding initiatives:

• Funding for Lending extended and ‘heavily skewed’ towards SMEs
• Government frees up £100 million for social lenders
• The government’s new business bank for SMEs

Commenting on the findings, Emmanouil Schizas, senior economic analyst at the Association of Chartered Certified Accountants, says, ‘Two worrying trends emerge from the SME Finance Monitor findings.

‘First, UK SMEs are becoming less profitable; second, fewer are applying for new or renewed loans and overdrafts.’

Shiona Davies, director at BDRC Continental, adds, ‘Borrowing by first-time applicants remains a challenge, but overall most SMEs that apply will be successful.’

However, Schizas says, ‘Of the few SMEs who are seeking new finance, even fewer take advice prior to applications, which could make a big difference in securing finance: asking for the wrong product, or the wrong amount of money, can get in the way of success.

‘For the first time since these surveys began, one in five applicants for new finance didn’t get a facility straight away but needed to provide additional clarifications and assurances and negotiate with the bank. Businesses need professional advice to navigate this process.’