6  All speeches are available online at www.bankofengland.co.uk/speeches  6  Chart 2: Different types of financial constraints experienced over the past five years  0  2  4  % of businesses  All firms - with too little investment 6  8  10  12  14  16  18  20  All firms - with the appropriate level of investment  90  All firms - all investment levels  80  Small firms - with too little investment  70  Small firms - with the appropriate level of investment Small firms - all investment levels  60 50 40 30 20 10 0  Received full amount  Expected rejection  Cost of funds  Maturity  Collateral  Source: Bank of England Finance and Investment Decisions Survey. a) Constraints are identified from the following questions: Question 19: “If your business applied for any form of external finance for investment over the past year, what was the outcome? External finance refers to bank loans, equity issuance, debt securities and other financial liabilities.” (Received 100%) Question 22: “Looking back over the past 5 years, how far do you agree with the following statements?” Expected rejection: I do not want to apply for external finance as I believe I would be turned down (agree). Cost of funds: I do not want to apply for external finance as I believe it is too expensive (agree). Maturity: I am able to borrow at the maturity I need (disagree).
Other obstacles to investment  The picture is, however, more complex than simply one of firms that underinvest having difficulty in raising external funds for investment. Of the firms in the survey that said they had invested too little, most cited other financial and non-financial obstacles as well. The most important of these was constraints on using internal rather than external funds – ie using profits – for investment rather than for distribution to shareholders or purchasing financial assets (including M&A). Nearly 70% of the firms who said they had underinvested, cited lack of internal funds for investment as an obstacle. Over 60% judged distribution to shareholders and purchasing financial assets as the most important use of internally generated funds. In fact, only a quarter of all firms prioritised using their internally generated funds for investment purposes (Chart 3). Three-quarters of firms put investment behind distribution to shareholders and investment in financial assets when assessing the most important use of internally generated funds. 8  All speeches are available online at www.bankofengland.co.uk/speeches  8  Chart 3: Most important uses of internal funds % of businesses 35  Firms with too little investment Firms with appropriate levels of investment All firms  30  25  20  15  10  5  0 Funding investment  Purchasing financial assets (including M&A)  Distributing to shareholders / owners  Keeping as cash balances  Notes: Question 17: ‘When you think about using internal funds what do you generally prioritise?’.