Lending at an all-time low for small businesses

LENDING to small businesses has hit an all-time low, a new study has revealed.

The new findings from the quarterly Small Business Index (SBI) show successful finance applications plummeting to the lowest level on record, prompting the Federation of Small Businesses (FSB) to warn that banks “pulling up the drawbridge” to small firms will further stifle economic growth.

Fewer than one in 10 (9%) small firms applied for finance in Q1 2022, the lowest proportion since SBI records began, and only 43% saw applications approved.

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

Of the few firms that did manage to secure finance, four in 10 (42%) plan to use credit to manage cashflow, considerably more than the numbers planning to use funds for equipment updates (21%), expansion (19%) or recruitment (4%)

The majority (61%) of small firms were impacted by late payment of invoices over the first quarter of this year, and 26% say the propensity for late payment is growing.

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 Chair 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.”