Lending to small businesses hits all-time low

New findings from the FSB show successful finance applications plummeting to lowest level on record

Lending to small businesses is at an all-time low, according to research from the Federation of Small Businesses (FSB).

New findings from the federation’s quarterly Small Business Index (SBI) show successful finance applications have plummeted to the lowest level on record, with just 43 per cent of applications approved.

Fewer small firms are also applying for finance. Just nine per cent applied in the first quarter of 2022 – the lowest proportion since SBI records began.

Of those that applied, 61 per cent sought traditional overdraft or loan products, while a quarter applied for asset-based finance, such as invoice finance.

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Of the few firms that were successful in securing finance, 42 per cent plan to use credit to manage cashflow.

The latest report has prompted the UK’s largest business group to call for “culture change” and warn that banks “pulling up the drawbridge” to small firms will further threaten economic growth.

Figures from the Bank of England show the annual growth rate of lending to SMEs is at a record low, while lending to big corporates has increased significantly since the start of the year.

See also: Half of small businesses operating below capacity

FSB national chair Martin McTaguesaid:“Lenders pulling up the drawbridge for small firms will threaten our already faltering economic recovery.

“Businesses are born every day across the UK – many need funding to get off the ground, ensuring they reach a stage where they’re profitable and creating opportunities.

“A lot of those who’ve worked tirelessly to adapt, survive and thrive over lockdowns need finance too, empowering them to take their firms to the next level, driving our economic recovery and the transition to net zero in the process.

“A big chunk of what little finance is being accessed is being used to manage cashflow challenges as our late payment crisis worsens, rather than for much-needed investment and innovation.

“The government should accelerate delivery of our proposal to make audit committees directly responsible for supply chain practice to address this worrying trend.

“Culture change is what’s needed here – lenders taking an objective approach to small business finance and big corporates putting best supply chain practice at the heart of environmental, social and governance programmes.  

“The result would be win-win: strength in corporate supply chains and a thriving small business community driving economic growth from the ground up.”

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Dom Walbanke

Dom Walbanke

Dom Walbanke is a feature writer for Growth Business and Small Business, focused on matters concerning start-ups and scale-ups. He has also been published in the Independent, FourFourTwo magazine and various...