Banks ‘pulling up drawbridge’ over lending to small businesses, Lancashire based group says

The Federation of Small Businesses is warning that banks “pulling up the drawbridge” to small firms will further stifle economic growth as its new SBI study shows successful finance applications plunging over the first quarter of this year.

Jus nine per cent of small firms applied for finance in Q1 2022, the lowest proportion since SBI records began. The share that saw applications approved (43 per cent) is also at a record low.

The number of respondents describing the availability of credit as “good” (19 per cent) has tumbled to its lowest point since 2016.

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

And most small firms (61 per cent) were hit by late payment of invoices over the first quarter.

Latest Bank of England figures show the annual growth rate of lending to SMEs at a record low, despite small firms making net debt repayments of close to £1bn in March alone. Lending to big corporates, by contrast, has increased significantly since the start of the year.

FSB national chairman 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.

“A big chunk of what little finance is being accessed is being used to manage cashflow challenges as our late payment crisis worsens, rather than for much-needed investment and innovation.

“The Government should accelerate delivery of our proposal to make Audit Committees directly responsible for supply chain practice to address this worrying trend.

“Culture change is what’s needed here – lenders taking an objective approach to small business finance and big corporates putting best supply chain practice at the heart of environmental, social and governance programmes.

“The result would be win-win: strength in corporate supply chains and a thriving small business community driving economic growth from the ground up.”