Bank lending shift to large firms over SMES gathers pace

● Lack of available credit hampering SMES’ ability to boost competitiveness

trend that has seen Britain’s banks shift towards extending more loans to big businesses while cutting back on lending to smaller firms has accelerated in the last year, a report today suggests.

The value of bank lending to large businesses is now worth £14.4 billion more than it was a year ago, while for small and medium-sized enterprises (SMES) it is now £200 million lower, according to Hadrian’s Wall Capital (HWC), the specialist debt adviser.

The widening gap comes despite a raft of governmentled policies and initiatives to encourage more lending to smaller businesses, such as the Funding for Lending Scheme, which has now ended.

Hadrian’s Wall Capital also argues that the Basel III capital requirements are likely to be a key factor behind the comparatively low levels of lending to SMES and the shift from SME to big business lending. The rules impose tighter controls on banks’ capital holdings and liquidity requirements, which experts have said would decrease the amount of credit available to smaller businesses and make it more expensive for those who could secure it.

Marc Bajer, chief executive of HWC, said: “Banks’ marked preference for lending to big businesses over smaller ones is getting worse, not better.”

Bank lending to SMES is currently worth £165.9 billion, the firm noted, whereas a year ago small business loans were worth some £166.1bn. In contrast, the value of bank loans to big businesses now tops £300.8bn, compared to £286.4bn a year ago.

HWC said many corporate finance advisers it works with cite a lack of fixed-rate and long-term lending as a major barrier to delivering successful merger and acquisition (M&A) deals.

It added that only a fraction of the lending that SMES are offered by banks is on a longterm fixed-rate rate basis.

A recent study by the Lona don-based debt adviser showed that just 16 per cent of lending to UK SMES is on a fixed rate, making it a challenge for SMES to plan investment or corporate finance activity as interest rates rise.

Bajer said: “Ten years on from the credit crunch and SMES are still feeling left out in the cold by banks.

“It’s especially hard for small businesses to accept compared to the relatively easy access to bank lending for large corporates. This difference is exactly the kind of unfair situation that the government has been trying to prevent – seemingly to no avail.

“Clearly, this lack of available credit hampers small businesses’ ability to boost market competitiveness via M&A, whether that’s reinvigorating a business through a management buyout or extending reach by bolting-on strategically important assets. “The message we’re hearing from corporate finance advisers is that reliable, alternative sources of long-term, fixed-rate lending are fulfilling a vital role in getting deals done.”