Banks are reining in SME lending, according to report

As the rein on funding tightens in the UK, we talk about the impact on SMEs and whether or not this will lead them to seek alternative sources of funding.

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According to figures from small business lender iwoca, 77% of brokers said that high street banks are reducing their appetite to fund SMEs. 

  • 77% of brokers said that high street banks are reducing their appetite to fund SMEs
  • British businesses are increasingly worried about access to funding, with new data showing banks are reducing SME lending
  • 40% of brokers have seen an increase in applications for funding being rejected over the last quarter

The retreat of retail banks from SME lending comes as the sector is already under pressure from proposed regulatory changes. 

Fintech expert and HedgeFlows cofounder Neh Thaker is concerned about the findings. He explains: “SMEs make up the vast majority of UK businesses, so giving them access to funding and support to grow is critical for driving the economy forward. If our SMEs thrive, we all benefit, in terms of job creation, skills and GDP.”

The impact on small businesses

Colin Goldstein, Commercial Growth Director at iwoca, explains: “With brokers predicting that the impact of current macroeconomic pressures this year will be worse than the pandemic for small businesses, it’s clear that SMEs across the UK are in need of financial support. And – as our data shows – traditional banks just aren’t offering this.”

On top of this, data shows that over 1m SMEs are on fixed energy contracts, negotiated with providers when prices were at their peak. This means the firms are locked into paying expensive bills despite the drop in energy prices.   

Will small businesses turn to alternative funding?

Alternative lenders may be the key to protecting small businesses from this financial shock. iwoca recently extended its funding line from £125m to £170m with long-term partner Pollen Street Capital. The company will use the additional £45m to provide loans to meet the growing demand for SME financing, having seen a 50% increase in the number of businesses it funded across the UK in 2022.

For more information on SME and startup funding and finance, we have the following resources:

Written by:
Stephanie Lennox is the resident funding & finance expert at Startups: A successful startup founder in her own right, 2x bestselling author and business strategist, she covers everything from business grants and loans to venture capital and angel investing. With over 14 years of hands-on experience in the startup industry, Stephanie is passionate about how business owners can not only survive but thrive in the face of turbulent financial times and economic crises. With a background in media, publishing, finance and sales psychology, and an education at Oxford University, Stephanie has been featured on all things 'entrepreneur' in such prominent media outlets as The Bookseller, The Guardian, TimeOut, The Southbank Centre and ITV News, as well as several other national publications.

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