UK SMEs report increasing difficulty in obtaining loans, with 67% noting reduced bank willingness, impacting businesses’ funding needs.

Sixty-seven percent of UK SMEs believe that banks are less willing to lend to them today; this number rises to 71 percent for SMEs with a turnover between £1 million and £5 million. It appears that UK banks are becoming less eager to lend to SMEs.

According to data from an independent SME funding source, Bibby Financial Services, 43% of UK SMEs think they now need more outside funding than they did six months ago. Though nearly half of UK SMEs stated they needed more assistance, over half (54%) claimed it was more difficult to get financing.

According to BFS’s most recent SME Confidence Tracker survey, 42% of UK SMEs who use external financing sources also claim that incumbent lenders have decreased credit availability between March and September.

The importance of the results was clarified by Bibby Financial Services’ chief financial officer, Theo Chatha. “These results are extremely concerning and will definitely impede the UK’s economic recovery, adding more strain to an already burdened SME population,” Chatha stated. Data points to a possible shift in the UK credit cycle during a company expense crisis that hasn’t been observed on this size in decades.

“Economic conditions combined with regulatory and accounting initiatives seem to be driving harsher lending standards, even though banks now are better funded than they were during the Financial Crisis.

This will significantly affect SME financing, both in terms of the amount of capital available to SMEs and the kinds of companies that banks feel comfortable lending to. If this problem is not resolved, the Bank of England has warned that there would be an increase in insolvencies in the upcoming months.


SMEs are looking for answers

A decrease in financing availability poses an extra challenge for SMEs that are struggling to stay afloat given the year-long increase in inflation, rising interest rates, and rising energy expenses.

More tax incentives are desired by 65% of UK SMEs in order to improve the situation, and 57% are requesting that the incoming government expand loan and grant availability.

The results are corroborated by statistics from the BDRC’s SME Finance Monitor, which shows that SMEs’ success rates for applying for loans dropped to 46% in Q2—a sharp decline from the 74% observed prior to COVID.

Despite the discouraging results, decision-makers and SME owners are still somewhat optimistic, with 63% of them anticipating a rise in sales in the upcoming months. Of those that need outside cash, 38% say they need it to run their daily operations. Additionally, nearly half (49%) claim that they require funding to support their expansion and growth.

Theo Chatha added, “The truth is that there are more independent options available for SMEs than ever before, even while traditional loan sources for SMEs seem to be drying up. The days of banks having to be a company’s first and only option when it comes to funding its operations are long gone.

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