SME lending grows for the first time since the recession

The number of small and medium-sized enterprises (SMEs) in the UK securing business finance has risen for the first time since the recession, according to the British Business Bank’s Small Business Finance Markets Report.

The comprehensive annual survey found that while SME lending was on the rise, a number of start-ups and growing small firms outside the south-east remain starved of much-needed equity finance.

Almost three-quarters (71 per cent) of equity funding went to SMEs based in London and the south-east of England, despite accounting for just 34 per cent of the business population.

The availability of bank lending for SMEs increased for four successive quarters in the year to October 2015 for the first time since 2007-08. The report also discovered a rise in private equity and peer-to-peer finance for SMEs, albeit from a much lower base.

Data suggests banks distributed their lending more evenly. Growth totalling £1.6bn in the net flow of bank loans reached four consecutive quarters through to the beginning of October 2015. The stock of bank loans and overdrafts was estimated at £163bn at the end of November 2015.

However, those small businesses with fewer than 50 employees were still struggling to borrow. Start-ups in particular, defined as businesses less than five-years old, still had a rejection rate of 50 per cent from high street banks.

Keith Morgan, chief executive, British Business Bank, said: “While there are encouraging signs that volumes are up and alternative finance markets are thriving, there remain areas that still require attention.”

Mr Morgan admitted that not enough small businesses were scaling up; a move which could increase overall UK productivity.

Just three per cent of UK start-ups become mid-sized, compared with six per cent in the United States.

Anna Soubry, small business minister, said: “Even though the lending landscape is improving, I’m well aware access to finance remains a big issue and want to see even more help for small firms looking to invest and create jobs for people.”

Date published 5 Feb 2016 | Last updated 5 Feb 2016