Latest research conducted by Oxford Economics & Funding Circle, The ‘Big Business of Small Business’ Report reveals that banks lending to SMEs (small and medium-sized enterprises) have decreased significantly a decade on from the financial crisis.
Yet when we give small businesses the power to go further, the economic output is enormous, having created 73% of jobs since the recession alone, according to a report from The House of Commons. It’s clear that small businesses are the lifeblood of the economy, so why are banks giving them the cold shoulder?
Historically, small businesses have depended on traditional forms of funding to grow their business, through banking. However this has served them poorly since the 2008 Banking Crisis, with an increasing number of business owners turning towards alternative methods to gain cash to fund expansion or to start-up a company.
Even though bank lending is facing a decline, the number of SMEs forming is on the rise and equates to 99% of all UK businesses, in comparison to larger organisations (250+ employees) which make up just 0.11%.
Despite their positive impact on the economy by driving economic growth, employment and innovation, the report found that lending to SMEs (small and medium sized enterprises) in the UK, accounts for only 2% of banks’ balance sheets.
The report also states that “the flow of net bank lending to SMEs (i.e new lending minus repayments) totalled just £518 million in 2018, compared with an average of £2 billion per annum over the previous three years”. In other words, the banks had collected more in repayments than they delivered in new loans and overdrafts to SMEs.
Applying for bank loans can be both exhausting, time-consuming and defeating – especially with amount of declined applications faced by many SME applicants. As a result, small business owners feel overlooked, with approximately 53% saying they found the process of accessing business finance through a bank a difficult experience.
When SMEs are able to access funding, it is often accompanied by more expensive terms than their larger counterparts. This is a disappointing statistic when it is evident that SMEs have a high growth potential and the economy could benefit from more businesses like these scaling-up.
Sam Moore, Managing Director of Economic Consultancy, Oxford Economics, commented:
“This report offers a stark reminder both of the critical role that SMEs play and the uphill challenges they face when dealing with the traditional banking sector.”
As a result, a growing number of businesses are moving away from thinking ‘bank first’ and exploring alternative options.
There is a wealth of alternative support available to drive business growth, and not just financially. Let’s Do Business Finance (LDBF), a not-for-profit, responsible finance provider, delivers Start Up and Growth Loans to help people start and grow businesses and increase job opportunities in the county.
Let’s Do Business Finance have made a valuable contribution to driving business growth as well as delivering an economic return of up to £53m – this staggering amount has helped to create and safeguard a minimum of 3700 jobs.
LDBF have supported over 3500 entrepreneurs primarily across the South East region – hitting over the £15m lending mark with Jeavon’s Toffee, where the funding is helping co-owners Lesley and Corin Jeavon to build the world’s first vegan toffee factory – in Newhaven!
Another example is Californian Classics. Bringing a taste of California to East Sussex, the classic Karmann Ghia specialists received a Growth Loan from Let’s Do Business Finance which enabled the business to expand its operation by purchasing specialist equipment and bring all elements of manufacturing in-house.
If you’re based in East Sussex or looking to move into the county and grow or start a business, Let’s Do Business Group offers a range of services that exist to drive growth within local enterprises and the economy, including Let’s Do Business Finance, Business East Sussex and Locate East Sussex.
Get in touch today to find out how we can help you. For Let’s Do Business Finance enquires, click here or email firstname.lastname@example.org.