30. 05. 2024

Are high street banks really restricting cash for SMEs?

Are high street banks really restricting cash for SMEs?

Nearly eight in ten brokers (77%) believe that high street banks are scaling back their willingness to fund small and medium-sized businesses, according to iwoca’s latest Q1 2024 SME Expert Index.

The figure remains unchanged from the previous quarter, reflecting the continued challenges SMEs face when accessing finance from traditional lenders.

Big businesses increasingly dominate the lending market

This comes as new analysis of Bank of England lending data over the past decade finds that big companies are occupying an increasingly large share of the lending market. Nearly four-fifths (77%) of bank lending by value went to larger businesses in 2023, up from 72% in 2014 and 2015.

iwoca’s analysis of the Bank of England’s data also shows that the total value of lending to SMEs from high street banks fell by over a billion pounds over the last year. Overall, gross bank lending to SMEs declined sharply from £15.5 billion in Q1 2023 to £14.2bn in Q1 2024.

Banks not meeting demand for SME finance

iwoca’s SME Expert Index finds that almost nine in ten brokers (86%) predict that demand for SME finance will rise over the next six months.

However, brokers say that they do not expect high street banks to meet this demand, with over two-thirds (68%) predicting that banks’ appetites for lending to SMEs will continue to decline, up from 65% in Q4 2023.

With traditional banking routes for SME finance continuing to shrink, just 25% of brokers say that they have a positive view of high street banks, while nearly half (49%) hold a negative view.

“Although optimism is quite high, the UK’s 5.5m SMEs are operating in an incredibly challenging lending market,” says Colin Goldstein, Commercial Growth Director of iwoca.

“From SME brokers across the country to official Bank of England data, the evidence is clear that the majority of high street banks are reducing their lending to small and medium-sized companies. This means that the importance of alternative lenders is more apparent now than ever.”

Analysis of the impact on SME financial health

The tightening of lending conditions by high street banks is significantly impacting the financial health of SMEs.

According to the OECD, the cost of financing for SMEs has increased, and there has been a notable decline in both bank and equity financing. This has led to liquidity challenges and restricted investment opportunities, especially for women-led and minority-owned businesses.

Accountants can play a critical role in helping SMEs navigate these financial constraints by advising on efficient cash flow management and exploring alternative funding sources such as grants and subsidies​.

Alternative financing options

As traditional bank lending to SMEs declines, alternative financing options are becoming increasingly important.

Accountants should be aware of the various alternatives such as fintech lending, peer-to-peer lending, and crowdfunding. These alternatives can provide more flexible terms and faster access to capital compared to traditional banks.

By guiding their clients through the pros and cons of each option, accountants can help SMEs find the most suitable financing solutions to support their growth and operations​.

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