High street bank lending to SMEs decreases as risk aversion heightens

As inflation persists and SMEs struggle to secure funding, data reveals banks are reducing their appetite to fund smaller enterprises.

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New data reveals that 83% of brokers believe high street banks are reducing their funding support for the UK’s 5.5m SME industry.

The survey conducted by iwoca, one of Europe’s largest small business lenders, suggests the SME funding gap could continue to widen as lending options are set to worsen in the coming months.

Data also reveals 82% of brokers expect SME demand for capital to rise in the next six months as inflation persists. Figures from the Office for National Statistics (ONS) predict that inflation will remain at 6.7% in the year leading up to September 2024.

Accordingly, 51% of SMEs now have a negative view of major banks, as data indicates that for four consecutive quarters they have scaled back SME financial support.

The results released by iwoca are part of its quarterly SME Expert Index, which surveys over 100 UK SME finance brokers, who collectively submit over 2,000 small business finance applications a month.

The struggle for SME funding

The drying up of traditional lending channels is not a recent occurrence. According to the Index, this is the fourth consecutive quarter where more than 80% of brokers have warned that major banks have reduced their support for the UK’s small businesses.

The pattern is set to persist, as 75% of brokers predict that high street banks will continue to reduce access to working capital over the next 12 months.

As SMEs submit applications for funding, 61% of financing experts have indicated small enterprises request loans to manage cash flow rather than to fund company growth.

Overall, this portrays the pessimism SMEs have towards the current macroeconomic climate. In fact, 58% confess they don’t believe the Prime Minister will meet his target to halve inflation by the end of the year.

“This research demonstrates as in the clearest possible terms that SME funding options are being stripped back – better suited lenders can and must step into the place of traditional banks,” points out Colin Goldstein, Commercial Growth Director at iwoca.

“Small and medium sized businesses need our vital financial support on the long road to economic recovery,” he adds.

As the Chancellor is scheduled to deliver the Autumn Statement on 22 November, with predictions that high corporate tax thresholds will persist, small businesses would be strategically sound to find alternative sources of finance to weather the macroeconomic storm.

Written by:
Fernanda is a Mexican-born Startups Writer. Specialising in the Marketing & Finding Customers pillar, she’s always on the lookout for how startups can leverage tools, software, and insights to help solidify their brand, retain clients, and find new areas for growth. Having grown up in Mexico City and Abu Dhabi, Fernanda is passionate about how businesses can adapt to new challenges in different economic environments to grow and find creative ways to engage with new and existing customers. With a background in journalism, politics, and international relations, Fernanda has written for a multitude of online magazines about topics ranging from Latin American politics to how businesses can retain staff during a recession. She is currently strengthening her journalistic muscle by studying for a part-time multimedia journalism degree from the National Council of Training for Journalists (NCTJ).

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