How lending issues are continuing to plague SMEs


Lending to small businesses has often made media headlines in the past due to a lack of finance being available and SMEs are suggesting this remains the case.


Despite accounting for 99.9% of all businesses in the UK and employing some 15.2 million people, SMEs have reported a fall in lending across the past 12 months.


Overall lending fell by £7.9 billion, and that is against a backdrop of improving confidence and rising demand for finance in order to bolster growth.


There are several reasons for this decline, as banks are under less political pressure to lend as the economy has recovered; while the end of the Funding for Lending scheme at the beginning of next year has seen some banks start to slowly reduce their involvement with it.


Another issue is the lack of incentive for banks to complete small loan deals – essentially it requires the same level of work as with deals involving larger sums but for less return.


Small business lending fell by almost £5.5 billion in June this year alone, marking its highest drop since it was introduced four years ago.


The introduction of new technologies also means a reduced need for property-backed loans – one of the main ways that finance has been offered in past years.


Commercial property is no longer a necessity for a small business so in many cases these firms are not prepared to consider finance that is tied into physical work spaces.


The UK leads the way for financial technology investment, having recorded growth of 74% a year since 2008, highlighting this change in approach towards work property.


When funding is tight or budgets stretched, SMEs are more likely to focus on boosting growth than they are on aspects of their firm that are not deemed fundamental to success.


Accessing finance can speed up this process, which is why many small firms still strive to find lenders that can help them to grow.


Without it, they could potentially miss out on a number of opportunities which could ultimately restrict progress or place a business under severe financial pressures.


Using restructuring processes can help to streamline businesses and free up some funds but this can be a major step to take.


Hunting around for finance deals should provide a company with a safety net from which they can actively look to grow, provided of course that they can successfully apply.


By Phil Smith


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