Lending to small business improves but problems still remain

Bank lending to small businesses has grown for the first time since the financial crash but problems still remain, according to a new report.

The British Business Bank’s Small Business Finance Markets Report 2015/16 showed that around 350,000 new businesses had been registered over the past 12 months. The UK now has a record total of 5.4 million smaller businesses and a certain amount of liquidity had entered the business finance market.

Equity finance investment in smaller businesses grew by 43% in the year to October 2015. The alternative finance sector grew even faster, swelling by 75% to a total value of £1.26 billion during the same period.

Banks remain the main source of funding for SMEs in the UK however. The report showed that bank lending did rise in each quarter of 2015. The four biggest banks accounted for 80% of small business lending and many SMEs still failed to consider alternative funding options, or even to look beyond the bank they regularly use for their business.

Despite the growth in overall lending, many smaller businesses still struggle to secure finance. This can seriously hamper growth and investment and in some cases could lead to serious difficulties or even the prospect of facing company insolvency. Any firm facing such issues should seek advice from insolvency practitioners in order to understand the range of support options that are available to them.

The report found that progress in the field of small business financing was vital to support economic growth in the UK as a whole. More than half (56%) of SMEs stated that they were looking to increase their turnover in the coming year but this will not be possible without reasonable access to finances.

Data from the OECD (Organisation for Economic Co-Operation and Development) shows that the UK is near the bottom of the table for the proportion of businesses that grow to more than 10 employees after three years. Access to finance is crucial in allowing small British businesses to upscale.

There is also a regional imbalance when it comes to small business funding in the UK. 71% of all SME equity investment went to companies in London and the South East. The report suggested that an increased availability of finance for businesses across the UK would help to rebalance growth.

By Phil Smith

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