Struggling SME’s or just the Small Enterprises?

posted by 6 years ago in News

Whilst larger SME’s (over 50 employees and/or over £10m turnover) are finding access to credit is improving, business loans from high street banks are potentially on the decline for small and micro businesses.

The first financial quarter of 2015 revealed that an estimated £1.36 billion worth of applications made by small businesses were refused by the banks.

The study from the BBA (British Banking Association) also discovered that the rejections between January and March had increased by 23% year-on-year.

The rejection figure from the first quarter in 2015 increased by 0.7% compared to the previous quarter – most of these rejections being loan requests. Overall, the total value of loans applied for equalled £1.09 billion, and the overdraft amount totalled £274 million.

According to Fleximize, SME’s are effected overall, but smaller firms have been hit the hardest. The stats show that 21% of applications submitted by small businesses were declined, whereas only 11% of medium-sized businesses’ applications were declined.

Unfair treatment just because of size?

Small business lending has been a sensitive subject in the past –  the Bank of England said back in 2013 “the lack of bank lending is part of the reason for the country’s very slow recovery from the financial crisis.”

The size of a small business is between 1 and 49 people and statistically, they include more start-ups whose applications are twice as likely to be declined when compared to a medium sized business.

Lenders fear that smaller businesses have a higher chance of failing and are reluctant to help them out financially. What needs to be taken into account is that the government is trying to help small businesses grow with the likes of the funding for lending scheme. However, the evidence is saying that funding is not getting to the smaller businesses that really need it.

What are SME’s adding to the market?

  • For every pound that is spent in a small business, 63p of that pound will stay in the economy, whereas only 40p of a pound spent in a larger business will go back into the economy.
  • Small businesses provide new employment and opportunities – they are adding value and strength to their local communities.
  • In 2014, the director general of the British Chambers Commerce said “small businesses are the backbone of our communities” – he was very insistent that customers should lean towards their local small businesses, instead of the bigger companies.
  • Small businesses have the ability to adapt to a changing climate if they need to, because they are usually more customer focused.
  • According to Keith Morgan of the British Business Bank, Britain’s small businesses are an engine for prosperity.

Other options for small businesses

Through the Enterprise Investment Scheme, small businesses have raised £1.46 billion in the UK, which is an increase of 41%, and the percentage has reached its highest ever level according to Radius Equity.

Last year, start-ups managed to raise £163.5 million via the SEIS- the Seed Enterprise Investment Scheme – this amount is nearly double the figure it raised in the first year of the SEIS (£85.9 million).

The latest figures from the HMRC show that the amount of businesses raising money from private sectors through the SEIS has grown. In 2013, 2,465 businesses got involved and in 2014 there were 2,710 businesses, meaning the amount has grown by 10%.

Lending to small businesses is a key factor behind the UK economy. George Osborne is trying to stress the significance of lending to small businesses as they represent 99% of UK companies.

Despite the lack of access to credit, small businesses are growing and there are now more than ever before. However, we at cannot help but think that more businesses would succeed or grow more quickly if they had access to credit.