High street banks have been significantly reducing their funding to SME’s for some time now and recent research shows lending in some of the country’s poorest areas is the most affected.
The study carried out by Iwoca found that small businesses in the North West saw a reduction in funding of 16%. Perhaps somewhat predictably, the smallest reduction in SME funding occurred in London at 3%.
The reasons behind this decline in funding? The well documented mass closures of high street bank branches seems to be the main factor. According to data from Which?, between 2015 and 2019 an average of 55 branches per month closed their doors in the UK. That’s a whopping 3,312 branches.
Given that the SME sector accounts for 60% of employment in the UK, this is a concerning decline that needs to be addressed. The lack of available finance has undoubtedly led to many missed opportunities for SME’s as often the high street banks are unwilling to offer the funding solutions to enable businesses to capitalise on them.
Whilst some of the major high street banks have created sizeable SME funds and schemes, it seems many are still unwilling to fund the sector and the one’s that do require very stringent terms that many SMEs find difficult to satisfy.
Therefore more and more SMEs find themselves taking the ‘non-bank lending’ route where the company’s individual circumstances are taken into account and funding decisions aren’t based on quite such prescriptive criteria.
Often, independent lenders can provide specialist finance solutions tailored for your business at a much speedier rate than their banking counterparts. Some applications with a high street bank can take several months to complete, whereas funding from an independent lender can be secured in a 3rd of the time. The service is swift and the funds quickly available, allowing SMEs to capitalise on business opportunities.
It should be mentioned here that loans from an independent financial services provider are rarely cheaper than the rates offered by the high street banks, but with a structured and well planned financial strategy, the funding is manageable and can grow with your business. The alternative is often a loan rejection from the high street banks, which was the case for around 100,000 SME’s according to a survey by The British Business Bank. That equated to approximately £4b of missed opportunity finance! When you take into consideration the alternatives, the higher rates are often well worth the additional cost.
When it comes to business funding, we would always advocate an initial financial review to ascertain all of the options available. You should always have a ‘long term’ mindset, treating ‘non-bank’ funding as a stepping stone to a more long term and sustainable finance facility.
If you are interested in finding out more about our finance options and funding solutions, email us at: email@example.com or call our office on 0118 338 1818.
We look forward to speaking with you.