Challenger and specialist banks have outpaced major UK banks in lending to smaller businesses, according to the British Business Bank’s Small Business Finance Markets 2022/23 report.
The report indicates that gross bank lending to smaller businesses reached £65.1bn ($90.1bn), a 12.8% increase from 2021.
The report also reveals a considerable drop in the proportion of smaller businesses using external finance, with only 33% of businesses using finance in Q3 2022, compared to 44% the previous year.
The report suggests that despite fewer smaller businesses using finance, gross lending still grew as businesses sought larger loans to support their operations amid inflationary pressures.
The report also indicates a significant rise in lending from challenger and specialist banks, which provided £35.5bn in loans in 2022, representing a 55% share of the market, exceeding lending by major banks.
The report found that equity investment in green innovation has grown rapidly, with net-zero-related deals accounting for 12% of all smaller business equity deals in 2022, compared to just 5% in 2018.
Investment value of net-zero-related deals rose by 184% over the past year to a record level of £1.7bn.
The report also highlighted the importance of innovation in scaling up UK productivity rates and encouraging economic growth, as the UK ranks fifth in the G7 nations in terms of the proportion of its smaller businesses that are innovative.
Louis Taylor, CEO, British Business Bank, said: “Today’s report finds strong growth from challenger and specialist banks, as well as asset finance provision, as businesses seek alternative finance options. There are promising signs of growth in the net-zero deal sector as equity finance markets respond to growing demand for investment in green innovation.
“Smaller businesses are clearly adapting to a challenging economic climate, with many reducing their use of external finance. At the British Business Bank, we are committed to supporting these businesses as they seek to achieve sustainable growth, and in turn boost economic productivity, by improving their access to external finance.”
