Understanding access to external finance for rural enterprises: Evidence from SMEs


This report provides an analysis of rural and urban businesses’ access to external finance in England. Using the UK Longitudinal Small Business Survey 2015-2020, it sets out to understand the journey of accessing finance, proposed by Fraser et al. (2015). 

We first consider demand for external finance of rural and urban businesses outside London. We then examine discouraged borrowing – the decision not to apply for finance even when firms express a need. Lastly, we explore rejection decisions made by financial providers once firms had applied.  

It is the second study into businesses’ access to external finance – our first focused on the use of finance and impact on growth. 

Research team

Key findings

At an aggregate level, there are more similarities than differences when comparing urban and rural businesses regarding their access to external finance.

Similar proportions of rural and urban businesses express a need and apply for external finance.

The chances of being rejected after having applied for finance are similar in urban and rural areas.

There is, however, differences between rural areas. Businesses located in hamlets and isolated dwellings are more likely to express a need for external finance compared to firms in other rural and urban settings.

Businesses in hamlets are also often less likely to be discouraged borrowers. This contrasts with the picture in rural town and fringe locations which often have the highest rates of discouraged borrowing.

Businesses in hamlets and isolated dwellings have higher likelihood of rejection than those in the other rural settings.

There are also regional variations, albeit not always consistent from year to year, between rural and urban businesses in terms of levels of demand, discouraged borrowing, and rejection rates.

Patterns of access are also associated with other business characteristics, relating to age, size, structure, ownership, and innovation and growth trajectory.

Conclusions and recommendations

  • Insignificant difference between rural and urban businesses located outside London may imply that they face similar challenges in accessing finance, and the issue may lie between London – the financial centre, and other areas.
  • Within rural economies, businesses in deep rural areas (i.e., in rural hamlets and isolated dwellings) appear to be different with those in villages and towns in their application decisions and rejection likelihood. This finding in general point to areas where there may be a mismatch between firms’ perception of getting access to external finance and their actual likelihood. This may imply that there are potential differences in firms’ confidence in their own creditworthiness or level of information to self-assess their chance of successful applications.