High street banks in the UK are reluctant to provide funding to small and medium-sized enterprises (SMEs), according to the data released by small business lender iwoca.
The latest findings from iwoca’s Q1 2024 SME Expert Index suggest that 77% of specialist brokers are observing a continuous scaling back in finance availability from banks.
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The data indicates a consistent view from the previous quarter, underscoring the ongoing financial hurdles for SMEs in accessing finance from traditional sources.
This trend is supported by a decade-long analysis of Bank of England lending data, which reveals a growing disparity in the lending market.
In 2023, 77% of bank lending by value was allocated to larger businesses, a noticeable increase from 72% in 2014 and 2015.
Moreover, the total value of lending to SMEs from high street banks experienced a decline, dropping over £1bn in the past year.
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By GlobalDataGross bank lending to SMEs plummeted from £15.5bn in Q1 2023 to £14.2bn in Q1 2024.
Despite these challenges, brokers anticipate a rise in the demand for SME finance over the next six months, with 86% predicting an uptick.
However, they remain sceptical about high street banks’ capacity to satisfy this demand, with 68% expecting a continued decrease in lending appetite, up from 65% in the last quarter of 2023.
The sentiment towards high street banks among brokers is predominantly negative. Only one in four brokers maintain a positive outlook on traditional banks while nearly half (49%) express a negative view.
iwoca commercial growth director Colin Goldstein said: “Although optimism is quite high, the UK’s 5.5 million SMEs are operating in an incredibly challenging lending market. From SME brokers across the country to official Bank of England data, the evidence is clear that the majority of high street banks are reducing their lending to small and medium-sized companies.
“This means that the importance of alternative lenders is more apparent now than ever. The good news is we are stepping up and in a great position to provide SMEs with access to the working capital they need.”
iwoca recently released data indicating a surge in the demand for larger loans among UK SMEs.
The company’s Q1 2024 SME Expert Index highlighted that 28% of SME finance experts reported the most requested loan amount was over £100,000, marking a significant 56% increase from the previous year.
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Eight in ten specialist brokers say high street banks are restricting cash for SMEs, as Bank of England data shows large companies prioritised
- Eight in ten brokers (77%) believe high street banks are reducing their appetite to fund small and medium-sized companies, according to iwoca’s SME Expert Index
- This comes as iwoca analysis of Bank of England lending data shows that the proportion of lending going to large businesses has risen over the past decade.
- Brokers believe this trend will only get worse, with seven in ten (68%) predicting that high street banks will reduce access to working capital for SMEs even further over the next twelve months.
The figure remains unchanged from the previous quarter, reflecting the continued challenges SMEs face when accessing finance from traditional lenders.
Big businesses increasingly dominate the lending market
This comes as new analysis of Bank of England lending data over the past decade finds that big companies are occupying an increasingly large share of the lending market. Nearly four-fifths (77%) of bank lending by value went to larger businesses in 2023, up from 72% in 2014 and 2015.
iwoca’s analysis of the Bank of England’s data also shows that the total value of lending to SMEs from high street banks fell by over a billion pounds over the last year. Overall, gross bank lending to SMEs declined sharply from £15.5 billion in Q1 2023 to £14.2bn in Q1 2024.
Banks not meeting demand for SME finance
iwoca’s SME Expert Index finds that almost nine in ten brokers (86%) predict that demand for SME finance will rise over the next six months.
However, brokers say that they do not expect high street banks to meet this demand, with over two-thirds (68%) predicting that banks’ appetites for lending to SMEs will continue to decline, up from 65% in Q4 2023.
With traditional banking routes for SME finance continuing to shrink, just 25% of brokers say that they have a positive view of high street banks, while nearly half (49%) hold a negative view.
Colin Goldstein, Commercial Growth Director of iwoca, added: “Although optimism is quite high, the UK’s 5.5m SMEs are operating in an incredibly challenging lending market. From SME brokers across the country to official Bank of England data, the evidence is clear that the majority of high street banks are reducing their lending to small and medium-sized companies. This means that the importance of alternative lenders is more apparent now than ever. The good news is we are stepping up and in a great position to provide SMEs with access to the working capital they need.”
