Collateral: is not a constraint for my business (disagree). However, a sizeable share of firms, one third, judged that they had invested too little. And two thirds of these – 20% of the entire sample – reported a variety of external financial constraints as an obstacle to investment. These firms were less likely to receive the full amount of finance they had applied for and more often experienced other external financing constraints. They were more often unable to borrow at the maturity required or faced collateral constraints. And again, these constraints were higher for the smaller firms that judged they had invested too little. 30% of the smaller firms in the sample said they faced external financing constraints on investment. Moreover 16% of small firms did not even apply for external finance for fear of rejection. One in five firms, out of a large representative sample, facing external financing constraints on investment sounds high – as does nearly one out of three of the smaller firms. It chimes perhaps with the still negative overall perception of financing conditions on the part of small firms. 7  All speeches are available online at www.bankofengland.co.uk/speeches  7  It is, however, hard to know whether or not these constraints were warranted. One would certainly expect the rejection rate of loan applications to be above zero. Not all investment projects are robust. It could represent prudent credit rationing by lenders. We do not have a sufficient time series to help gauge what a ‘normal’ rejection rate looks like.
Some caveats are required here. In the survey responses there was an under-representation of younger firms. This makes the results less informative about the investment behaviour and financing needs of younger companies, particularly of start-ups. Moreover, as this is the first time such a survey has been carried out, we cannot evaluate the results through time to see whether and how firms' approach to investment has changed over the years. And of course the survey reflects the subjective judgments of the firms that responded. These need to be evaluated against the harder, aggregate data on investment. That said, the survey sheds light on a number of interesting aspects of firms’ behaviour and on the availability of finance for investment, which may go some way to explain the weakness of investment since the crisis. I want today to concentrate on two of these. First, the reasons why around a third of the companies surveyed believed they had underinvested over the past five years. And second, whether the rates of return firms require to invest suggest that there is now a greater risk premium that may be leading to lower investment more generally. The ‘Underinvestors’  One of main motivations for the survey was to shed light on whether the cost or availability of finance was acting as a constraint on investment. Corporate borrowing in general crashed following the financial crisis. This was clearly due to constraints on the supply of finance as well as a marked reduction in demand.