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SMALL BUSINESSES MISSING OUT ON FUNDING DESPITE RECOVERY IN UK BANK LENDING

Bank

 

• LENDING TO SMEs FROM BANKS HAS DECREASED BY £1 BILLION PER YEAR SINCE 2016, YET LARGE BUSINESSES HAVE SEEN A SIGNIFICANT INCREASE OF 43% DURING THE SAME PERIOD

• BANKS COLLECTED MORE IN REPAYMENTS FROM SMEs THAN THEY GAVE OUT IN NEW LOANS AND OVERDRAFTS

• SMEs INCREASINGLY MOVING AWAY FROM “BANK FIRST” AND TURNING TO NON-BANK SOURCES OF FINANCE 

 

Banks are still not lending to small businesses despite the overall recovery in UK bank lending – according to new research.

 

The latest report from leading small business loans platform Funding Circle and Oxford Economics, ‘The Big Business of Small Business’, highlights that while the value of new bank lending to large businesses increased by 43% between 2015 and 2018, it has decreased to SMEs by 3%[1] - more than £1 billion per annum.  

 

From 2011 to mid-2015, banks decreased the volume of lending to firms of all sizes. Since then, the loans they issue to large firms have recovered quite significantly, while those issued to SMEs have stagnated. When changes in bank overdrafts are considered, net lending to SMEs was in fact negative in 2018, at minus £95 million. This means that the banks collected more in repayments than they gave out in new loans and overdrafts to SMEs. At the same time, the number of UK bank branches fell by 37% between 2007 and 2017. 

 

This is despite there being 260,000 more small businesses today than in 2015 (5% increase) and employment across the SME sector now exceeding 16 million, accounting for 60% of the UK’s total private sector employment and 50% of UK GDP. 

 

SMEs LOSING FAITH IN BANK LENDING

Figures suggest small businesses are deterred from borrowing from the banks by their negative experiences or perceptions. Over a third (38%) did not complete the application process as they thought it too difficult or complicated. As a result, small businesses are drawn to the speed and ease of using Funding Circle for finance, with 84% saying that they approached the platform first ahead of a bank. 

 

A SWITCH TO NON-BANK SOURCES OF FINANCE

5% of SMEs applying for external finance over the previous 12 months have applied to a lending platform––up from 1% in 2014. The share applying for a bank loan fell from 48% to 38% over the same period.3 In the whole of 2018, net lending through Funding Circle (£723m) was £200 million more than that of the entire banking system combined (£515m). 

 

Joining us in the studio to discuss the findings from the report and why more SMEs are turning to non-bank sources of finance is Natasha Jones, from Funding Circle

Let's Talk: Why are small businesses missing out on funding?

The latest report from leading small business loans platform Funding Circle and Oxford Economics, ‘The Big Business of Small Business’, highlights that while the value of new bank lending to large businesses increased by 43% between 2015 and 2018, it has decreased to SMEs by 3%[1] - more than £1 billion per annum.