UK banks appear to be growing increasingly reluctant to lend to SMEs, with 67 per cent of UK SMEs believing they are less willing to lend to them today – increasing to 71 per cent for SMEs with a turnover between £1million and £5million.

Data from research by independent SME funder, Bibby Financial Services, also found that 43 per cent of UK SMEs believe their need for external finance has increased compared to six months ago. However, while almost half of UK SMEs require more help, more than half (54 per cent) said it is harder to access finance.

Of the UK SMEs using external finance sources, 42 per cent also say incumbent lenders have reduced funding availability between March and September; according to BFS’s latest SME Confidence Tracker report.

Theo Chatha, chief financial officer at Bibby Financial Services

Theo Chatha, chief financial officer at Bibby Financial Services, explained the significance of the findings. Chatha said: “These findings are incredibly worrying and will undoubtedly hamper the UK’s economic recovery, placing further pressure on an already besieged SME population. Data reflects a potential turn in the UK credit cycle during a cost-of-doing-business crisis not seen on this scale for decades.

“Though banks today are better capitalised than they were during the Financial Crisis, economic conditions coupled with regulatory and accounting initiatives look to be driving tougher lending criteria.

“This will have a significant impact on SME finance, both in terms of the level of funding SMEs have access to, and the profile of businesses banks are comfortable to lend to. Unaddressed, this situation will intensify, causing a further rise in the number of insolvencies over the coming months – something the Bank of England has warned of.”

SMEs are seeking solutions

As inflation has continually risen over the last year, and as interest rates and energy costs have remained high, a reduction in access to finance presents an additional barrier for SMEs that are trying to keep their heads above water.

To improve the situation, 65 per cent of UK SMEs would like to see greater tax incentives, and 57 per cent are asking the next Government to improve access to loans and grants.

Findings are supported by data from BDRC’s SME Finance Monitor which found success rates for credit applications among SMEs fell to 46 per cent in Q2, a significant decrease from the 74 per cent seen pre-Covid.

Despite the disappointing findings, some optimism remains among SME owners and decision-makers with 63 per cent expecting sales to grow over the coming months. Regarding the need for external finance, 38 per cent require funding to manage day-to-day operations. Furthermore, almost half (49 per cent) say they need finance to fuel growth and expansion.

Theo Chatha also concluded: “Though traditional lending sources for SMEs seem to be drying up, the reality is that there are more independent options available for SMEs than ever before. Gone are the days when banks need to be the first and only port of call for businesses looking for funding to survive, thrive and grow.”

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