Seven out of 10 small UK firms looking to pay off debt - survey

LONDON (Reuters) - Seven out of ten small British firms are aiming to pay off their debt and not borrow more, a survey published on Thursday showed.

Many small businesses are wary of borrowing, distrusting banks following scandals including the mis-selling of interest rate hedging products and allegations about the way firms struggling to repay their debt are treated.

Policymakers are worried that firms' reluctance to borrow to invest in their businesses could hamper economic growth.

The SME Finance Monitor, carried out by research consultancy BDRC Continental, also found that, in the first quarter, 48 percent of 5,000 British small-and-medium-sized enterprises (SMEs) surveyed were now "permanent non-borrowers", having no plans to borrow money.

However, the survey showed some signs of a returning appetite for finance, with the proportion of small businesses borrowing in the last 12 months rising to 35 percent from 18 percent previously.

The survey found that success rates for those that did apply for finance were improving with 76 percent of all loan and overdraft applications in the last 18 months resulting in businesses being accepted.

"With the uncertainty caused by the General Election now over, it will be fascinating to see whether that appetite for loans and overdrafts or indeed other forms of finance continues to grow amongst SMEs," said Shiona Davies, a director of BDRC Continental.

The survey, which is the largest and most frequent of its kind in Britain, is commissioned by the Business Finance Taskforce, which was set up by the British Bankers Association in 2010 to review how banks could help Britain return to growth.

(Reporting by Matt Scuffham; Editing by Mark Potter)