Eight in ten brokers believe banks have reduced appetite to fund SMEs

High street banks are pulling back from lending to small and medium-sized businesses (SMEs). At the same time, demand for capital is set to rise with over eight in ten SME finance experts (83%) believing that high street banks are reducing their appetite to fund the UK’s 5.5m SMEs, according to iwoca’s latest SME Expert Index.

The analysis shows that the drop in lending is set to worsen, with three quarters of brokers (75%) predicting that high street banks will continue to reduce their access to working capital over the next twelve months.

Eight in ten brokers (82%) also predict that SME demand for capital will rise in the next six months, widening the financing gap business owners are already experiencing.

As traditional routes for small business financing reduce and are unable to meet the needs of SMEs, more than half of brokers (51%) report a negative view of high street banks.

Data from brokers comes as the Office for National Statistics revealed that inflation remains stubborn at 6.7% in the year leading up to September.

Three in five SME financing experts (61%) say that SME demand for loans has been driven by the need to manage cash flow rather than to fund company growth – up a quarter in just three months.

The figures also show that six in ten (58%) believe the Prime Minister won’t meet his target to halve inflation by the end of the year.

Colin Goldstein, Commercial Growth Director at iwoca, said: “Sticky inflation means SMEs are focussed on short-term funding to help them through this period. Against this backdrop, high street banks are reducing their appetite to lend to the UK’s 5.5 million SMEs – so the funding gap is widening.”

“This research demonstrates in the clearest possible terms that SME funding options are being stripped back – better suited lenders can and must step into the place of traditional banks. Small and medium-sized businesses need our vital financial support on the long road to economic recovery.”