Drop in lending to SMEs ‘disappointing’

Bank of England governor Mark Carney
Bank of England governor Mark Carney
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The Bank of England has announced that lending to SMEs via the Funding for Lending Scheme dropped in the fourth quarter of 2014.

Nick Dodd, debt advisory partner at KPMG in the North West, said the move was disappointing when many firms were finding it difficult to access finance.

It’s disappointing to see a £0.8bn drop in debt finance directed to SMEs through the Funding for Lending Scheme, albeit the rate of contraction has slowed compared to the same period in 2013, which is something of a silver lining

Nick Dodd

He said: “It’s disappointing to see a £0.8bn drop in debt finance directed to SMEs through the Funding for Lending Scheme, albeit the rate of contraction has slowed compared to the same period in 2013, which is something of a silver lining.

“While positive GDP growth of 0.5 per cent suggests there is at least reason for cautious optimism on the growth prospects for SMEs, this is not yet enough to prompt businesses to race into investment decisions and call on the associated debt finance.

“However, while we want to see SMEs be able to secure finance to fund growth when they are ready to commit to expansion plans, it should be recognised that this won’t – and indeed can’t – all come from the banks.

Mr Dodd added: “Regardless of whether this is due to a lack of appetite from SMEs for bank debt or a mismatch between the risk profile of lending applicants versus the risk appetite of the lenders, it is important that ambitious SME owners consider where their growth finance will come from, and then prepare for in-depth conversations with lenders or investors.

“This can prove to be a major business project, for which busy entrepreneurs are often unprepared.

“Indeed, a recent study from BMG research shows 37 per cent of businesses give up their search for finance and cancel their spending plans after their first rejection.”