British banks letting down UK SME’s financing needs, research suggests » SMEInsider

British banks letting down UK SME’s financing needs, research suggests

broken piggy bank

A quarter of small businesses (26%) do not feel supported by their banks, according to a survey of 500 SMEs conducted by YouGov.

The sentiment is most pronounced in the category of businesses turning over less than £1m, in which 30% claim to feel ‘unsupported’.

The research, commissioned by P2P finance specialist Nucleus Commercial Finance, also revealed that SMEs are in the dark regarding the notice periods on their business overdrafts.

Some 40% claimed their banks had to give them at least a week’s notice or didn’t actually know what the notice period was.

The most popular overdraft notice period answers were three months or more than three months, with 14% of small businesses and 19% of medium sized businesses claiming their banks were obliged to give them at least three months’ notice.

Chirag Shah, CEO of Nucleus Commercial Finance, commented: “Unfortunately for SMEs, banks don’t need to give them any notice at all before removing their overdrafts – but they often don’t make this clear. Businesses work this source of unsecured funding into their budgets and rely on their overdrafts to plug working capital gaps on a month-by- month basis.

“The fact that a three-month overdraft notice period was the most popular answer suggests many SMEs have a shock coming further down the road when this lifeline disappears.”

Shah continues: “Banks are simply reluctant to make this type of unsecured lending available. Basel III required them to acquire more capital to sustain the same level of risk, and SMEs are often their least profitable and therefore lowest priority business customers.

“That small businesses don’t feel supported isn’t a shock: according to figures from the Bank of England, SME lending via overdrafts alone has fallen almost £8.5bn in four years. In fact, the latest BBA figures show in Q1 this year, banks approved £6.1bn of new SME loan and overdraft facilities. This was 18% lower than in the same quarter last year. It’s a worrying trend for SMEs.”