New Experian research categorises small firms according to their financial needs
Demonstrates how SME finance is spread and used
Reaching Expanding Operations key to growing SME portfolios
Nottingham, UK, 30 January 2012 – Experian®, the global information services company, today published the results of new analysis that categorises UK small and medium sized enterprises (SMEs) by their financial characteristics and borrowing habits.
The analysis examined Companies House information dating back to 2004 and provides new insight into small business borrowers.
Segment |
Proportion of SME base |
% of bank funds borrowed |
Typical insolvency rate |
Adjusting Businesses |
12% |
10% |
1.8% |
Contented Mature Considerations |
8% |
1% |
0.7% |
Expanding Operations |
37% |
39% |
0.9% |
Higher Risk Concerns |
15% |
11% |
5.4% |
Working-Capital Driven Successes |
13% |
19% |
0.5% |
Rest Of The Pool |
16% |
20% |
1.2% |
Source: Experian 2011
SME borrowing segments
Accounting for around 12 per cent of the SME population, Adjusting Businesses are firms experiencing contracting sales and are adapting their workforce numbers accordingly. They typically require funding to buy survival time in order to adjust the business to cope with current difficulties.
Contented Mature Considerations tend to be financially sound, older and often family run businesses. Less ambitious for growth compared to other groups, they have low insolvency rates. When they do borrow it is only relatively small amounts.
The greatest opportunity for SME lenders is presented by Expanding Operations. These companies are growing sales and in many cases employees, net worth and assets. The growth that they enjoy provides a survival premium, with business of this type going under at around half the average insolvency rate. Lenders looking to grow their SME portfolios can use data and analytics to find those with the greatest growth potential and proactively offer support.
Higher Risk Concerns are those SMEs experiencing significant performance problems. Businesses in this group tend to be unprofitable, poorly rated and have bad working capital positions. There are companies with high growth potential in this segment, but constituents fail at three times the average rate and are often reliant on security to obtain the credit they need to buy survival time.
Seen as a safe-haven for lending, Working-Capital Driven Successes tend to attract the most generous levels of bank borrowing and are a good potential source for finding depositors. These are stable companies that, having reached their optimal size, are profitable and enjoy strong net worth and working-capital positions.
The remaining 16 per cent of SME businesses make up the Rest of the Pool. These SMEs have no clear pattern of behaviour, but includes a number of firms that have a good balance sheet. As with other groups, the key to understanding customers from this segment lies in the use of data and analytics to precisely determine the potential for profit, growth and also the likelihood of impairment associated with each individual business.
Max Firth, Managing Director for Business Information Services at Experian UK and Ireland, comments: “Our analysis shows that SMEs’ borrowing requirements are far from uniform. Most SME borrowers are growing and require finance to fund expansion; some simply need to secure cash-flow, and a small proportion are looking for finance to buy time and security as they adjust to changing conditions and market preferences.
“The low risk, sound positions and existence of capital assets have historically led SME lenders to favour working-capital driven business, but the greatest opportunities are with companies that have the potential to significantly expand their operations, even if there they are slightly more risky.
“A sound understanding of each individual applicant’s risk profile and growth prospects will enable lenders to profitably grow their SME portfolios and support the wider economy. The use of data, software and analytics makes this possible.”
ENDS
About Experian
Experian is the leading global information services company, providing data and analytical tools to clients in more than 80 countries. The company helps businesses to manage credit risk, prevent fraud, target marketing offers and automate decision making. Experian also helps individuals to check their credit report and credit score, and protect against identity theft.
Experian plc is listed on the London Stock Exchange (EXPN) and is a constituent of the FTSE 100 index. Total revenue for the year ended 31 March 2011 was US$4.2 billion. Experian employs approximately 15,000 people in 41 countries and has its corporate headquarters in Dublin, Ireland, with operational headquarters in Nottingham, UK; California, US; and São Paulo, Brazil.
For more information, visit http://www.experianplc.com