Credit crunch: Data suggests high street banks reining in small business lending already
Small and medium-sized enterprises (SMEs) are increasingly concerned about lending conditions as new data shows that high street banks are pulling back from SME lending.
According to data from fintech firm Iwoca, 77 per cent of brokers reported that high street banks are reducing their appetite to fund SMEs. The data was collected from more than 100 SME finance brokers who submitted over 2,500 finance applications for SMEs in March.
The data also showed just under 40 per cent of brokers have seen an increase in applications for funding being rejected over the last quarter.
However, in a more positive sign, the most common reason for SME loan applications according to over half of brokers was to expand the business.
The retreat of retail banks from SME lending comes as the sector is already under pressure from proposed regulatory changes.
As part of the latest round of Basel regulations, the post-financial crisis regulatory overhaul, the Prudential Regulation Authority (PRA) is proposing to remove preferential treatment for SMEs, known as the SME Supporting Factor. This would force banks to hold more capital against loans to the sector.
Data from analytics firm Oxera suggests this move could reduce small business lending by as much as a third.
Richard Davies, chief executive of SME lender Allica Bank, told City PM: “SMEs are the lifeblood of the UK’s economy. It’s worrying to see them struggle to get the vital funding they need, especially at a time with increasing cost pressures.”
“Current plans to implement Basel 3 standards will impede banks’ abilities to support the SME segment. Today’s data highlight the importance of choice in SME lending and we hope the regulator hears our call for action in amending the current proposals,” he continued.
The regulator is continuing to consult on the proposals.
On top of lending concerns, the research shows that SMEs continue to worry about the impact of high energy bills. Three-quarters of brokers reported that small businesses are concerned about their business surviving persistently high energy prices.
It is estimated that over 1m SMEs are on fixed energy contracts, negotiated with providers when prices were at their peak. This means the firms are locked into paying expensive bills despite the drop in energy prices.
Despite this, the Government cut its financial support to businesses struggling with energy bills at the beginning of April. As a result just 22 per cent of brokers think the fiscal measures announced by the Chancellor in the Spring Budget will have a positive impact on small businesses.
In the face of these headwinds, concern about recession had dropped. While 60 per cent of brokers reported it as a concern, this was down from 77 per cent in the fourth quarter last year.
The PRA declined to comment.