Fewer UK small businesses use overdrafts, loans for financing

LONDON (Reuters) - Fewer small businesses in Britain are using traditional forms of financing such as overdrafts, loans and credit cards, a survey showed on Thursday, raising questions over the role banks play in financing them.

A survey of 65,000 small firms by market research company BDRC Continental in the second quarter of this year revealed that 30 percent of small firms were using these traditional financing methods, down from 36 percent two years ago.

The British government is concerned that the country's biggest banks are not lending enough to small businesses, hampering the economic recovery, and is keen to promote alternative types of finance, such as peer-to-peer lenders.

"Use of, and appetite for, external finance remains broadly stable but we are seeing declining use of, and appetite for, 'traditional' core lending products like loans and overdrafts," Shiona Davies, a director at BDRC, said.

The survey found that use of other forms of finance such as leasing and invoice finance have been more stable over time and were currently used by 18 percent of small firms.

It also showed that eight out of ten small companies have not applied for any sort of finance in the past year.

More than three-quarters of the companies in the survey were happy not to seek financing during the period, 17 percent had borrowed during the period, while 5 percent wanted to borrow but then held back.

The survey found that the main reasons for companies not seeking financing included expectations of being turned down and the time taken up by the application process.

(Reporting by Matt Scuffham. Editing by Jane Merriman)