Lending to SMEs plummets: 84 per cent of country saw fall over past year

Bank lending has decreased for a huge number of British SMEs, with businesses in central London suffering the most.

SME lending has fallen majorly in the last year, according to new figures.

A whopping 84 per cent of the country saw bank lending to SMEs plummet as small businesses continue to face huge headwinds in securing finance, says Hadrian’s Wall Capital (HWC), the London-based specialist debt adviser.

HWC says that 101 of 120 areas of Great Britain saw net falls in the value of outstanding bank loans to SMEs last year, as banks continued to withdraw from lending to small businesses.

The total fall in lending amounted to 5.2 per cent, or £9.7 billion, in a single year.

The withdrawal of bank lending has even spread to what have been some of the best-performing parts of the UK economy, with the EC and WC postcodes in central London seeing falls of 23 per cent and 21 per cent respectively in just 12 months.

Only four areas – Crewe, Inverness, Norwich and Llandrindod Wells in rural central Wales – saw increases of more than 3 per cent in SME bank lending last year. HWC says all of these areas experienced a ‘bounce’, having suffered from cuts to bank lending in recent years.

More demand for fixed-rate finance

HWC says that it has seen an increase in enquiries about its fixed-rate finance offering from businesses and their corporate finance advisers, as cuts to bank lending bite amid rising interest rates.

Recent research from HWC shows that a rise in interest rates by just 0.25 per cent will immediately cost SMEs £355 million in extra interest payments from bank loans. What’s more, just 11 per cent of bank loans to businesses are now on a fixed-rate, down from 49 per cent in 2012, creating huge uncertainty over long-term costs of borrowing as interest rates rise.

The firm says that while the need for long term, fixed-rate lending for small businesses is growing, access to this kind of finance has fallen sharply. Banks are continuing to push business borrowers towards floating-rate loans as they de-risk their balance sheets in preparation for further interest rate rises over the coming years.

In HWC’s opinion these SME funding headwinds are affecting the corporate finance market for small businesses. HWC believes management teams are becoming more cautious on pushing forward with Management Buy Out (MBO) and Management Buy In (MBI) deals due to concerns over both the availability and the long-term cost of finance.

Marc Bajer, CEO of Hadrian’s Wall Capital, comments that the news is not great for small businesses seeking finance,

‘With the period of very low interest rates ending and banks reducing SMEs fixed-rate lending, we don’t expect securing finance to get any easier for small businesses in the foreseeable future. Small businesses really need finance which they can rely on in the long term, and which is now in increasingly short supply,‘ he says.

‘Advisers to small businesses need to be aware that while banks are no longer able to provide long term, fixed-rate lending, it is available from alternative providers.’

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Anna Jordan

Anna is Senior Reporter, covering topics affecting SMEs such as grant funding, managing employees and the day-to-day running of a business.

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