SME funding drought to worsen
More than eight in 10 business finance experts believe that high street banks are reducing their lending to UK-based small- and medium-sized enterprises (SMEs), with lending conditions expected to get worse in the coming months.
According to new data from Iwoca, more than half (51 per cent) of brokers have a negative view of banks, following four consecutive quarters of scaled back SME finance support.
82 per cent of brokers believe that SME demand for capital will rise in the next six months, while banks are expected to further tighten their lending requirements.
Iwoca’s third quarter 2023 SME Expert Index also found that SME demand for loans has been driven by the need to manage cash flow rather than to fund company growth, in a worrying reflection of the economic landscape.
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Furthermore, 58 per cent of brokers do not believe that the prime minister will meet his target to halve inflation by the end of the year.
“Sticky inflation means SMEs are focussed on short-term funding to help them through this period,” said Colin Goldstein, commercial growth director at Iwoca.
“Against this backdrop, high street banks are reducing their appetite to lend to the UK’s 5.5 million SMEs – so the funding gap is widening.
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“This research demonstrates in the clearest possible terms that SME funding options are being stripped back – better suited lenders can and must step into the place of traditional banks.
“Small and medium-sized businesses need our vital financial support on the long road to economic recovery.”
A separate analysis of SME borrowing from Ebury found that business debt repayments halved in the third quarter of this year compared with the previous quarter, in another sign that ongoing high inflation and interest rates are starting to impact business owners.
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