Bank branch closures linked to dramatic fall in small business lending

The closure of hundreds of local bank branches over the past three years has had a dramatic effect on lending to small business in the affected areas, according to a new study.

The research, by campaign group Move Your Money, suggests that small business lending has more than halved, with lending to small businesses down by 63% in areas that had lost a bank branch. In towns and villages that had seen the closure of their last local branch the effects were even starker, with a 104% drop in small business lending.

According to the report, Britain’s biggest banks – HSBC, Barclays, the Royal Bank of Scotland and Lloyds Banking Group – have been steadily reducing the number of local branches they operate in order to cut costs. Investment into online and mobile banking has been increased but the lending figures suggest that many small businesses still prefer or require bricks and mortar branches.

The report claims that the impact of branch closures on lending was not able to be properly scrutinised until the British Bankers’ Association (BBA) began releasing data about local lending patterns in 2013.

Last month Reuters reported that the big high street banks were disproportionately closing branches in low-income areas while expanding in relatively high-income areas. The Reuters analysis found that more than 90% of overall branch closures occurred in areas where the median household income was under the UK average salary of £27,600.

A general fall in available funding via overdrafts and traditional bank business lending has led many SMEs to explore alternative finance options, especially if they are facing difficulties. A study published earlier in the year, by Cambridge University and financial charity NESTA, revealed that the level of funding provided by the alternative finance sector in 2015 had risen to £3.2 billion.

This represented a huge growth over the past few years. In 2012 the alternative finance market was worth just £267 million. The report estimated that the industry would “burst through the £3.5 billion mark” during 2016.

By Phil Smith

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