Small business lending back to pre-pandemic levels

New research by the British Business Bank has indicated that lending to small businesses has returned to pre-pandemic levels.

The Small Business Finance Markets Report 2022  found that 2021 was a year of contrast between debt and equity smaller business finance markets. Bank lending returned to pre-pandemic levels while equity investment in smaller businesses reached record highs.

The  British Business Bank predicts that output and investment growth in 2022 should create demand for finance but notes of caution remain, particularly in sectors most hit by Covid-19. Both economic uncertainty and smaller businesses’ debt positions will influence finance flows in 2022.

The report says breaking down barriers to smaller business finance and accelerating finance use are vital to achieving net-zero. External finance can help both eco-innovators and eco-adopters contribute toward the UK’s net-zero target.

Commenting on the figures, Todd Davison, MD of Purbeck Personal Guarantee Insurance said: “The credit risk appetite might have returned to pre-pandemic levels, but banks will be keen to bolster their security requirements. We also believe alternative finance and peer-to-peer lenders will increasingly request Personal Guarantees. This comes at a time when household and business finances are being squeezed and the property market is set to slow after record price rises. These factors could materially change the value of assets called upon to settle a loan through a personal guarantee if a business fails, leaving business owners in a very precarious position.”

While British Business Bank has stated in its report, 15% of successful finance applications required security in 2020, separate data from Legal and General suggests over half of SME business owners have given personal guarantees to secure their borrowing.

Davison concluded “There is little doubt that lenders are ready to meet an increased demand for small business finance, that has not been satisfied by the Recovery Loan Scheme – but not at the risk of their own security.  It is vital that as business owners sign personal guarantees to access finance, they must also consider personal guarantee insurance to mitigate the risk of losing their home and other personal assets if their business fails.”