Despite positive signs of the economic recovery continuing to gather momentum, information from the latest BDRC SME Finance Monitor continues to highlight the Forum of Private Business’s ongoing concern that continued distrust in the banking sector may slow down the pace of recovery in the real economy.

Figures for the first quarter of 2014 show that economic conditions continue to be less of a barrier to business growth, with only 20% of small business owners citing the current climate as a significant barrier to growth (a fall of 12 percentage points when compared with the same quarter last year).

However, the report highlights the continuing slide in the number of small businesses turning to loans and overdrafts as a way to fund future business growth. A third of firms surveyed reported using external finance, while 30% of businesses questioned had looked to inject their own funds into their business in the past 12 months.

In addition, the most recent findings identified 48% of small businesses as ‘permanent non-borrowers’ choosing to shun all forms of external finance to fund their future development. More importantly, over half of start-up firms surveyed (51%) planned to remain free of any banking restraints, suggesting a continuing long-term shift away from seeing debt-based finance as a key element for funding a new venture.

Phil Orford, chief executive of the Forum of Private Business, said: “The latest figures from the survey show a continued fall in the number of businesses that see the economy as a barrier to investment, but a continued decline in small firms looking to outside sources for future funding.

“In 2011 51% of small businesses used external finance and 30% were seen as ‘permanent non-borrowers’. Today’s figures show a clear reversal in the number of businesses looking to the banks and other external sources moving forward. Although the continuing mistrust of financial institutions is understandable, it is vital that small businesses are able to take the opportunities that are presented to them and external finance should have a significant role to play in helping businesses fully realise their growth potential.

“The Treasury is looking at a key area of how to get more businesses approaching non-bank sources of finance, such as through the alternative business funding website. This is a great opportunity for businesses to look to finance growth through these new and robust alternatives to traditional bank finance.”