Banks cut lending to SMEs as focus shifts to big business
Lending to SMEs has decreased by 3 per cent since 2015, while in the same period lending to large firms has jumped a staggering 43 per cent, new research has shown.
SMEs make up around 98 per cent of businesses in the UK private sector and contribute £1.9 trillion each year towards the economy of the UK.
Furthermore, the sector employs some 16 million people in the UK.
Despite these statistics, a new report published by Oxford Economics revealed that small business lending makes up only a small proportion of banks' balance sheets, or 2 per cent to be exact.
The flow of net bank lending to SMEs totalled just £518 million in 2018, compared with an annual average of £2 billion over the previous three years.
The report, however, warned that when changes in bank overdrafts are taken into account, net lending to SMEs was actually negative in 2018 – meaning the UK banks collected more in repayments than they gave out in new loans and overdrafts to SMEs.
Oxford Economics revealed that the stagnation in bank lending to SMEs is in stark contrast to the continued rapid expansion in SME activity. In fact, the total number of SMEs has increased by over 260,000 since 2015.
The lack of support from banks has seen SMEs turn to non-bank lenders. As a result, the total value of the alternative finance market in the UK grew 35 per cent to £6.2 billion during 2017, the research showed.