91% of small and medium enterprises (SME's) are unlikely to apply for funds from a payday lender a new report suggests. The report states it is ‘fairly unlikely’ or ‘very unlikely’ that they would consider a payday lender as a provider of finance. Just 6% said they were ‘likely’ to consider using one.

The BDRC Continental’s Business Opinion Omnibus report comes as Wonga, the most well known payday lender, recently made an announcement that it is to launch a service providing credit for small businesses.

The research by BDRC Continental reveals four key reasons why the UK’s small businesses are rejecting such short-term loan specialists.

Among the reasons given for not wanting a payday loan are cost, which emerged as the most common deterrent to using a payday lender (55%), followed by 31% who ‘prefer to stick to traditional suppliers’ and a quarter (26%) who were put off by the fact that ‘payday lenders have a poor reputation’.

James Dunleavy of BDRC Continental commented on the findings as follows:

“Despite the tough economic climate, it’s clear that the UK’s SMEs do not appear interested in using a short-term fix to the long-term challenge of financing their business. In reality, there are signs that payday lenders may have mis-read both the appetite and need of SMEs for additional finance on any terms. SMEs are telling us that they have reservations about using payday loans and a good proportion (31%) prefer to work with traditional suppliers. This is consistent with the findings of the most recent SME Finance Monitor study* from BDRC Continental, which found that most SMEs that applied for finance were successful – an encouraging sign for this important sector of the British economy.”

In the Q4 2012 SME Finance Monitor study into the availability of finance for the UK’s SMEs, BDRC Continental found that most SMEs with an appetite for borrowing that applied for finance were successful.

79% of those businesses that applied for a new / renewed overdraft facility subsequently received one, while 63% of those that had applied for a new / renewed loan facility were also granted one