Business Loans for Small to Medium Enterprises Still Tough
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Business Loans for Small to Medium Enterprises Still Tough

The numbers don’t tell the whole truth. A Bibby Financial Services survey of 1,000 businesses found that 17 percent of small to medium sized enterprises (SMEs) had loan applications to High Street Banks denied. However, Bibby research also finds that 65 percent of SMEs haven’t sought a loan in at least 12 months. That’s a strong indication that most are shunning High Street Banks. Still, a separate BDRC SME Finance Monitor report claims that 51 percent of SMEs need business financing within the next year.

According to the British Bankers’ Association (BBA) the average monthly loans to SMEs have been cut in half compared to 2008 rates. This is despite the Funding for Lending Scheme launched in 2012 by the government and Bank of England. That scheme saw mortgages become easier to obtain but not SME loans.

A Sign of Hope

As part of the Funding for Lending Scheme (FLS), the Bank of England stated that June loans to small businesses increased by £238 million. However, that’s a pittance compared to the overall £1.3 billion decline in business lending. And the £476 million decline the month before.

Other recent potentially good news is that the average interest rate for small business loans fell by 0.23 percent to 2.41 percent, the lowest rate since December 2010.

Local Banks Aren’t Much of an Alternative to High Street

Earlier this month, the Trustee Savings Bank (TSB) opened 632 doors to 4.6 million customers with some promise of making SME loans more accessible. But the fact is, in the split form Lloyds, while TBS claimed to make £1 billion in loans available to manufacturers, it also sent 117,000 SMEs out the door.

Banking analysts expect bank loans to SMEs to bottom out this year, reaching a 25 percent decline compared to 2008. However, the same analysts hold out hope that lending will recover over the next three years. Possibly increasing to £1 billion by the end of 2016. The guesstimate is SME lending will increase 7 percent in 2014, 10 percent in 2015, to reach £602 billion by the end of 2016 – a 40 percent increase over 2008.

There May Be a Perception Difference

It might be rhetoric but the banks say they are open to making more SME loans. What SME owners are saying is the banks will not listen to the reasons and logic behind the need for the loans. The banks reply there is an appeals process for loans that are turned down.

The general business consensus is that for the economy to grow, High Street Banks need to be more proactive providing SME loans, promoting awareness that funding is available, and improving access to the funding.

The reality is that if the two sides can’t get together it will continue to be a drag on the economic recovery. Big enterprise might look big but the fact is SMEs are the biggest drivers of economic growth.