Glimmers of positive growth for SME lending for 2017

Lending to SMEs has dropped by £2 billion in one year but early indicators in 2016 reveal an uplift in lending and confidence that SMEs can secure finance.

Lending to small and medium sized businesses (SMEs) across the top 10 UK cities dropped by over £2 billion in one year, according to the SME Growth Watch Report 2016, from specialist challenger bank Hampshire Trust Bank. However, early indicators in 2016 reveal an uplift in lending to SMEs and confidence that they can secure finance.

The research, conducted in partnership with the Centre for Economics and Business Research (CEBR), analyses the latest full year British Bankers Association (BBA) lending figures to reveal a decline in SME lending. Across the UK’s 10 major cities, outstanding lending dropped by 6 per cent (£2 billion) between Q4 2014 and Q4 2015. There has been a 12 per cent (£4 billion) decline in lending levels since Q2 2013, when city data started to be collected.

However, when looking to the future, the research shows almost three in five (58 per cent) UK SMEs feel confident about securing finance over the next 12 months. In addition, the latest quarterly BBA figures indicate there has been an expansion in SME borrowing this year.

CEBR states the reason for the previous decline in SME lending is two-fold. According to CEBR, tougher lending criteria set by banks have meant that those SMEs that wish to borrow have found themselves unable to do so. On the other hand, some firms have reduced their investment intentions and their need for borrowing, partially as a consequence of an unstable economic environment.

London is the home of UK SMEs

London is home to the largest number of SMEs and smaller businesses in the capital borrowed £77 billion from financial organisations in 2015, according to the research, however this is a 6 per cent decline compared to 2014 levels. Edinburgh and Manchester experienced the largest decline in borrowing levels between Q4 2014 and Q4 2015, with a drop in lending of -9 per cent and -8 per cent respectively.

However, when looking to the future, 58 per cent of UK SMEs feel confident about securing finance over the next 12 months. According to the report, SMEs in the North East and North West are the most positive, with 70 per cent of regional firms feeling confident they will be able to access the relevant external funding required for expansion, compared to 60 per cent in London.

The SME Growth Watch Report 2016 also identified that medium sized businesses are more confident about obtaining finance, compared to their smaller counterparts – 64 per cent to 57 per cent respectively.

Overall, only one in ten (11 per cent) consider access to finance as a key barrier to their plans for future growth.

Nina Skero, managing economist at CEBR, thinks that because SMEs across UK’s top 10 cities forecast to contribute £217 billion to the economy by 2020, the study highlights how vital it is to nurture the optimism they are demonstrating if they are to continue to be the engine room of the economy.

Despite the confidence displayed by SMEs about securing finance in the future, the past data shows a steady decline in lending. We believe the reason for that is two-fold as a tougher lending criterion has meant that some SMEs that have wanted to borrow have been unable to do so. At the same time, some firms have reduced their investment intentions, partially as a consequence of an unstable economic environment.

‘We expect the importance of smaller firms to the country’s economy to increase in the coming years and hope this research will inspire business leaders across the UK to invest in their growth strategies.’

Mark Sismey-Durrant, chief executive at Hampshire Trust Bank, says, ‘For too long, larger lenders have dominated personal and business banking and this has had a negative effect on SMEs, which often do not meet the lending criteria.

‘However, SMEs are right to be confident about the future as there are different finance providers out there, away from the high street banks, which are able to support smaller businesses with their expansion aspirations. Specialist banks, such as Hampshire Trust Bank, play a crucial role in providing finance to SMEs in the markets in which they operate and we urge firms to consider different options when seeking new sources of funding.’

Further reading on business loans

Owen Gough, SmallBusiness UK

Owen Gough

Owen was a reporter for Bonhill Group plc writing across the and titles before moving on to be a Digital Technology reporter for the

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