Uncertainty could result in the largest cut to SME lending, by banks, since the financial crisis of 2008, according to the latest Bank of England Credit Conditions Survey.
Availability of business loans has remained steady for the past four years but SMEs could suddenly find their access to bank funding significantly reduced, according to the Bank of England’s latest survey (Q3, 2019).
The quarterly survey indicates that, as a consequence of increasing defaults during the third quarter, banks plan to reduce their fourth-quarter business lending. With SMEs already facing a £22 billion funding gap, according to Bank of England Governor Mark Carney, there is an obvious threat to growth.
With many SMEs reliant on borrowing to fund growth, the Bank of England survey will raise concerns that companies will be unable to invest if they cannot secure credit.
These latest figures show that the number of lenders expecting to reduce access to business credit over the remainder of 2019 is now 13.5% higher than those offering easier access to loans. If this prediction becomes reality, then the fourth quarter will see the most pronounced drop in business lending by banks since 2008.
To compound the predicted drop off in bank-based business lending, the Credit Conditions Survey also highlighted a diminishing appetite for credit from UK businesses during the last quarter. This reluctance to seek business loans resulted in a 12% fall in small business demand for finance.
Uncertainty over the UK economic situation combined with a growing caution over the perceived risk of SME lending is causing problems for small businesses accessing capital.
The forecasted tightening of business lending, by banks, could be a huge opportunity for the alternative finance sector. A growing awareness among SMEs has already resulted in 50% contacting providers other than the ‘big five’ banks when seeking finance, according to the British Business Bank’s Small Business Finance Markets report for 2018/19.
As banks reduce their lending to SMEs, alternative finance providers including marketplace lending platforms stand ready to fill that £22bn funding gap. LendingCrowd is stepping in to fill some of this funding void and has been funding the ambitions of SMEs since 2014.
Providing a fast, flexible funding option for SMEs, LendingCrowd has already paid out on over 765 business loans, totalling over £67m, to small businesses from Portree to Portsmouth. Providing a viable, fast alternative to bank lending, when access to capital from traditional sources is shrinking, helps hundreds of SMEs to Think Outside The Bank.