Results show continued cooling of SME relationships with banks

Johnson Reed
2m read

In what is becoming a continued trend, fresh results from multiple sources are showing a continued cooling of SME relationships with traditional and high-street banks.

According to a Forum of Private Business (FPB) report, more than a third of small business owners describe their current banking services as “average”, with 16% concerned about getting finance from there.

The report also shows that 14% would like greater access to finance, with 12% wanting banks to take a greater proportion of risk associated with lending. The survey also shows a wider problem of a quarter of small businesses reluctant to seek alternative forms of lending.

Phil Orford, Chief Executive of the FPB, said:

A growing economy poses its own issues for small businesses, as they decide whether to invest for expansion.

The Government, the banks, other lenders and business support organisations are all important enablers of growth and need to work together to ensure small businesses are getting the necessary amount of money in the right format.

Meanwhile, the latest Bank of England report on its Funding for Lending Scheme shows that loans to small firms dropped by more than £700 million in the first quarter of 2014, despite its continued efforts to boost credit. The Government has taken it upon itself to help cushion this loss by legislating to force banks who turn down small firms to recommend alternative lenders.

Phil Wood, Managing Director of Barringtons Corporate Recovery (BCR), said:

Access to finance for small business has to be made easier to form a solid bedrock for the economy to recover and prosper. Low interest is of no benefit if the businesses cannot borrow the money to expand and it is fair to say that the traditional banking route is not making life any easier for small business owners. Fortunately alternative sources of finance are now coming into their own with lenders such BCRS, formerly the Black Country Reinvestment Society, and crowd funding platforms and many others adding numerous alternatives to the already established invoice discounters and asset based lenders.

The most telling sign of the times is from the FPB’s survey, which shows that nearly half of businesses asked classed themselves as “permanent non-borrowers”, shunning all types of external funding.

How this affects the UK economy going forwards will only be known in time.