Small business lending showing signs of recovery

Lending to the UK’s small businesses is showing signs of recovery, according to new research from Hampshire Trust Bank.

The SME Growth Watch Report 2016 revealed that although lending fell by 6% in 2015 as a result of stricter lending criteria and reduced market confidence, there are signs of a return to health.

The study – done in partnership with the Centre for Economics and Business Research – focused on the top ten UK cities and found a £2 billion drop in lending between the final quarters of 2014 and 2015.

London’s small businesses were lent the most according to the study, totalling £77 billion, with lending in the city down by 6%.

In Edinburgh and Manchester, lending fell by 9% and 8% respectively, but despite the falls, nearly six in ten small businesses (58%) are confident they will secure finance in the coming year.

This is in line with figures from the British Banker’s Association which suggests lending has gradually improved in the last 12 months.

Those in the North East and North West are particularly positive, as 70% think they will be able to access alternative finance options to ease difficulties and enable growth, while 60% of those in London feel the same way.

Perhaps unsurprisingly, given they have operated for longer, medium-sized start-ups were more confident that smaller firms and just 11% see finance as a potential barrier to growth.

The situation is different for smaller firms as they have less available capital and are more vulnerable to financial difficulties should something go wrong.

This means they face an increased risk of insolvency or administration if they do not keep a close eye on their situation and manage any issues accordingly.

Despite improved confidence, the CEBR has warned to watchful of the historical data, as it shows wider trends in the overall lending market and reflects global economic uncertainty.

It is also suggested in the study that options for small businesses are increasing, which in turn should aid expansion in the long-term.

By Phil Smith

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