Charles Haresnape: SME finance should be “sustained by lenders rather than dampened”

While the economic picture in the UK has been brightening over the past few years, one area where you would expect more progress to have been made is in lending to businesses.

It stands to reason that rising levels of lending to businesses as firms seek to fuel their expansion plans would accompany an economy returning to growth. However, the most recent figures from the Bank of England paint a somewhat different picture.

A sharp fall in lending to businesses in June perhaps can serve as a reminder that the economic recovery still has some way to go. The BoE data also showed a £5.487bn monthly drop in bank lending to non-financial businesses, the biggest decline since records started in May 2011, and compared with an £818m increase in May. While it is necessary to take into account that monthly lending data is often volatile, the fall should nevertheless be a concern for policymakers who have stated that business lending is key to the continued resurgence of Britain's economy.

While alternative finance is a fast growing sector of the market, banks are still the primary lenders to the majority of SMEs and are a critical conduit of vital funds to all manner of businesses.

For the UK’s 5.2 million small businesses, of which 5 million are micro-businesses, timely access to capital, whether for buying business premises or investing in vital equipment, is essential. While on the face of it micro-businesses might not seem to have a large impact, pop-up retail is now worth £2.3bn to the UK economy, an increase of 12.3% on last year, research from the Centre for Economics and Business Research found. Pop-ups now account for 0.76% of total UK retail turnover, up from 0.6% the year before, and smaller firms such as these often are less able to deal with delays in accessing finance.

Recent research by the Federation of Small Businesses shows that nearly two-thirds of SMEs have signalled a desire to grow, essential in helping to sustain the economic recovery, which will undoubtedly require access to capital. This rising confidence is a sentiment that should be sustained by lenders rather than dampened.

George Osborne stated that he was giving a new remit to the Bank of England's Financial Policy Committee to stress the importance of banks lending for productive investment. From lenders to borrowers and the wider economy, it is in everyone’s interest to keep lending channels open to provide finance for SMEs. It is a particularly good opportunity for newer entrants to take on the more traditional lenders by offering business lending in new and different ways.  

By Charles Haresnape, Group Managing Director, Mortgages, Aldermore