New findings from Bibby Financial Services (BFS) bring to light a potential risk to the UK’s economic structure, as evidence suggests banks are becoming increasingly hesitant to provide loans to small businesses.
BFS’s recent SME Confidence Tracker report discloses that nearly half (43%) of UK’s SMEs have noticed their requirement for external financing grow in comparison to half a year ago. Yet, a concerning 54% indicate that securing such finance is becoming more challenging.
Alarmingly, over two-thirds (67%) feel that banks are now less inclined to lend to them. This sentiment rises to 71% for businesses with a turnover ranging from £1m to £5m. Furthermore, 42% of those relying on outside financing claim that established lenders have curtailed their funding between March and September.
Theo Chatha, the chief financial officer at Bibby Financial Services, voiced his concerns stating, “These findings are incredibly worrying and will undoubtedly hamper the UK’s economic recovery, placing further pressure on an already besieged SME population. Data reflects a potential turn in the UK credit cycle during a cost-of-doing-business crisis not seen on this scale for decades.”
With the economy already grappling with stubborn inflation, mounting energy prices, and elevated interest rates, reduced access to financing presents another significant hurdle for SMEs. 65% are urging for enhanced tax breaks, and 57% desire the subsequent government to bolster access to loans and grants.
The BFS findings align with the BDRC’s SME Finance Monitor data, which identified a drop in successful credit applications among SMEs to 46% in the second quarter. This is a sharp fall from the 74% success rate witnessed before the pandemic.
Chatha remarked: “Although today’s banks are better capitalised than during the Financial Crisis, prevailing economic scenarios combined with regulatory and accounting measures seem to be resulting in stricter lending norms. This has vast implications for SME financing in terms of the quantum of funds accessible and the types of businesses that banks feel confident lending to. If left unchecked, this will only worsen, leading to a surge in insolvencies – a situation already flagged by the Bank of England.”
However, amidst these grim revelations, SME owners and decision-makers retain some hope. 63% anticipate sales growth in the coming months. When it comes to external financing, 38% state it’s essential for daily operations, while nearly half (49%) express it’s critical for growth and expansion.
Chatha concluded by shedding light on the broader financial landscape: “While conventional lending avenues for SMEs appear to be waning, the fact remains that more independent alternatives exist now than ever before. The era where banks were the sole go-to for businesses in need of funds is behind us.”
