Lending to Small and Medium Sized Enterprises

Lending to individuals continues at pace despite some slowing of the market, thanks in no small part to the Mortgage Market Review (MMR), but SME lending continues to lag behind. Now this isn’t another MMR article – those are the last we’ll see of that particular acronym for this piece I promise – but it’s clear this regulatory initiative continues to cast a huge shadow over the financial services industry.

Interest rate speculation is another area dominating many headlines and conversations within financial circles. This, combined with some house price consternation, remains high on the Government’s agenda as speculation continues regarding levels of intervention required to help combat escalating property values and the lack of affordable housing within certain areas of the UK. Another major focus in recent times has been lending to SME’s, with the Treasury – quite rightly – urging the UK’s biggest banks to increase competition in lending to small and medium-sized businesses in order to boost the economy. A focal point of this SME lending drive is a new and independent website Business Banking Insight (BBI) which is designed to give clarity around the services smaller businesses receive from their banks.

The move is part of a push to enable smaller businesses, which remain the lifeblood of the British economy, to grow both in size and in employment numbers, as part of the wider economic recovery. Additional layers of support and lending are a must and this was evident in a recent SME Finance Monitor which showed that SME’s are turning their back on banks for financing amidst on-going “mistrust” of lenders.

The monitor showed that only a third of Britain’s small businesses have turned to their banks for financing in the past quarter, the lowest level on record. Despite the Government’s repeated efforts to boost bank lending for firms, the data also reported that 33 per cent of small firms reported using external finance, which includes banks loans, overdrafts and credit cards in the first quarter. Instead 27 per cent said they regularly use trade credit while 30 per cent said they had used personal funds. Almost half of SMEs (48 per cent) are now “permanent non-borrowers”, shunning all external finance options, the survey found, up from 41 per cent last year and 30 per cent in 2012.

A separate survey to launch the BBI also found on-going discontent with banks. The survey of 5,000 businesses found 85 per cent had not approached a bank to apply for credit during the past 12 months.

There has been a dearth of SME and commercial lending in general in recent times but there remains room for smaller, more flexible and innovative lending. Fortunately there has been some recent emergence of lenders who are recognising broker’s interest in these markets and are now putting together more niche products to help combat some of the gaps left by the high-street lenders.

In fact, growing numbers of lenders, of differing sizes, are eyeing the commercial sector keenly and the sooner they tip their toe in the water the more options brokers will have a better, more transparent deals for their clients. Not to mention the ability to become less reliant on those high-street lenders who do have a history of turning the credit taps on and off when it suits them, and not the intermediary market or their clients.

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