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Bank lending to small firms at all-time low, says FSB

Martin McTague, FSB chairman
Martin McTague: lenders are threatening faltering recovery

Banks have been accused of “pulling up the drawbridge” and denying small firms desperately needed finance to ensure they survive and grow.

A survey by the Federation of Small Businesses shows successful finance applications plunging over the first quarter of this year, firms using finance to cover cash flow rather than for investment, and the late payments crisis getting worse.

Fewer than one in ten (9%) small firms applied for finance in the first quarter and the share seeing applications approved (43%) is at a record low, the study finds.   

It follows Bank of England figures showing the annual growth rate of lending to SMEs at a record low. Lending to big corporates, by contrast, has increased significantly since the start of the year. 

One in ten (11%) small firms plan to close, sell or downsize their business over the coming year, equating to more than half a million businesses. 

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According to the FSB research, the number of respondents describing the availability of credit as “good” has tumbled to just 19%, its lowest point since 2016.

Of the few firms that did manage to secure finance, four in ten (42%) plan to use credit to manage cashflow, considerably more than the numbers planning to use funds for equipment updates (21%), expansion (19%) or recruitment (4%) 

The majority (61%) of small firms were impacted by late payment of invoices over the first quarter of this year. A quarter (26%) say the propensity for late payment is growing – close to one in ten (7%) experienced late payment for the first time in Q1 of this year.

Of those that applied for finance, the majority (61%) sought traditional overdraft and/ or loan products. A quarter (25%) applied for asset-based finance, such as invoice finance, with smaller numbers seeking funds through peer-to-peer platforms (7%) and/ or crowdfunding (5%).

FSB national chair Martin McTague said: “Lenders pulling up the drawbridge for small firms will threaten our already faltering economic recovery.    

“Businesses are born every day across the UK – many need funding to get off the ground, ensuring they reach a stage where they’re profitable and creating opportunities. 

“A lot of those who’ve worked tirelessly to adapt, survive and thrive over lockdowns need finance too, empowering them to take their firms to the next level, driving our economic recovery and the transition to net zero in the process.”

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