GlobalData
3 min read
Rachel Reeves has held conversations with the traditional high street banks about lending to SMEs and how their current criteria is hampering their growth. This is encouraging to see after what seems like years of SMEs being frequently turned down by their banks for finance.
Loan success rates have deteriorated over the years, falling to a 50% success rate compared to a pre-pandemic approval rate of 67% in 2018, according to a report from the Department for Business and Trade.
This is undoubtedly due to risk; SMEs may have defaulted on the repayment of Covid recovery loans, making them a riskier prospect for credit. The strict lending criteria could therefore be justified, but consequently, it has also held back vital investment and ultimately impacted business and economic growth.
On the other side of this story is the independent lender, which has remained a constant presence for SMEs against a backdrop of banking caution. We don’t need a pat on the back for this, but we do need the SME owner to know that banks are not their only option.
Understanding SME access to finance is something we have invested in over the past five years, and in a recent survey we asked 500 SME owners if they had been turned away by their bank and if so, if they had looked elsewhere for finance. Six in 10 of those surveyed said they would choose their main bank for commercial finance. If banks are therefore acting more cautiously, that leaves a 60% majority of SMEs vulnerable to declined finance. Our survey did go further and found 35% of all respondents had been turned down by their bank. So that gives some sense of scale to the caution Rachel Reeves is trying to combat.
In terms of access to other options, only 27% of our survey respondents looked elsewhere when they were turned down, and we have taken that as a clear sign we have some awareness to build as lenders. Our intention has always been to be accessible; as an independent funder we have supported a wide range of businesses, large and small and across numerous industries, and we take our role in helping SMEs thrive - and in some instances, survive - very seriously.
Our role as an SME lender over the years has taught us that SMEs need more awareness of the funding solutions available to them. They need a lender that makes the various offerings and options easy to understand, and they also need access to advisors and intermediaries in helping them to apply.
Opening up mainstream lending to more SMEs is a necessary aim for the Chancellor, and Government underwriting may mean we see a higher success rate for SME funding going forward. There is a bigger picture, however. Not only has independent lending been more accessible than ever before, but we’ve also enhanced our finance solutions so they are more suited to what SMEs need right now.
