UK small businesses struggling to secure loans » SMEInsider

UK small businesses struggling to secure loans

While credit conditions for UK business are showing general signs of improvement, the situation for smaller businesses remains tight, according the Bank of England’s quarterly report on trends in lending.

Net lending to UK businesses was seen to be positive in the three months to May, in contrast to a negative flow in the previous period, but small and medium-sized companies failed to benefit from the improvement, instead seeing a £200m dip in loans.

The report also shows that non-bank alternatives, such as peer-to-peer lending and crowdfunding are an “increasing source of finance” for some companies.

One of the problems for SMEs is that banks are often simply unable to lend the sorts of sums that they tend to need.

Mike Francis, head of asset finance at Investec, commented:

“For most high street banks it is simply not economic to lend sums of less than £50,000. As a result there needs to be a serious shake up in the approach SME’s take towards securing funding. Whether that means turning to alternative finance providers or spreading the cost of asset purchases over a number of years through asset finance, SMEs need to start thinking about different ways of investing in their businesses and managing their cash flow.”

Ian Currie, director of the corporate finance advisors Seneca Partners, was less positive:

“It’ll take more than one month of positive lending figures to turn round the oil tanker. The high street banks remain deeply wary of lending to small businesses, and the annual trend is still downwards. Ever since the financial crisis, many high street bank managers have turned risk aversion into a mantra. With the knowledge that their neck would be on the line for any loans that go bad, some have even discouraged small businesses from applying.”