Banks report SME lending standards have tightened in the first half of the year and are also expected to tighten slightly in Quarter 3.
The report has a special focus on the challenges to firms posed by COVID-19 and monitors the provision of credit to SMEs by financial intermediaries.
Sectoral difference
The report finds that:
• The shock to firms’ turnover has been large (21% of firms report turnover is 75% lower), but differs by sector,
• Firms with the most constrained revenue have reduced their non-personnel costs the most, those reporting revenue declines of over 50% have reduced non-personnel costs by 43%. But 39% of firms have not reduced costs, increasing to 60% where revenues declined 10-49%,
• The accommodation and food sector have reduced non-personnel costs the most – 49% of firms in this sector have reduced non-personnel costs by more than 50%,
• Survey evidence suggests 39% of firms have unpaid invoices, amounting to around 20% of 2019 revenue for the typical firm, which may pressure cash flow or amplify shocks upon company failure,
• As many as 42% of firms report changing or deferring payments to manage cash flow, increasing to 91% of firms in the accommodation and food sector,
• Following increases in small non-financial corporation (NFC) non-revolving loans early in the year, compared to 2019, new lending has since declined,
• As of May, 72% of SMEs reported no change in access to finance and 6% of SMEs reported a decrease.
• Smaller firms lack a bank lending relationship, particularly micro firms (36%), which can help inform lenders credit assessments and support the firm’s access to finance,
• Greater SME indebtedness in the accommodation and food sector (20% exceeding half of turnover) may limit capacity to borrow more, but 44% in this sector do not hold any debt, while 57% of all firms do not hold any debt.
• Some of the sectors with the largest amount of outstanding bank debt (accommodation and food and wholesale and retail) are more exposed to the shock from COVID-19.