Over half of the country has seen bank lending to SMEs fall over the past year, as small businesses continue to face difficulties securing finance, says Hadrian’s Wall Capital (HWC).
Seventy four out of 132 postal areas of Great Britain saw falls in the value of outstanding bank loans to SMEs over the last year, which follows on from the fall in SME bank lending in 2017.
Many of the cities in Britain’s former industrial and manufacturing heartlands experienced some of the largest falls in bank lending, which has made the local business environments even more challenging given the uncertainties created by Brexit.
Birmingham suffered the biggest fall in the country, with lending to SMEs falling 8% in the last year, followed by Oldham (7%) and Sheffield (6%).
HWC says that these former industrial areas are often the most in need of SME finance to help restore efforts to revitalise their local economies.
Only three areas of the 132 areas studied – Newport, Warrington and Oxford – saw increases in lending of 5% or more in the past year.
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Banks have been particularly cautious over lending to smaller businesses due to uncertainty surrounding Brexit. Many banks are concerned that a no-deal Brexit could trigger a slowdown in the economy and impact the ability of SMEs to pay back loans.
Despite a previous study by HWC which demonstrates that SME loans are less risky than high-yield corporate bonds, SMEs are often regarded as being of a higher risk of default compared to larger businesses and banks have been keen to de-risk their balance sheets ahead of a potential no-deal Brexit.
HWC says the fall in lending highlights the dangers for SMEs of relying on traditional bank loans for finance. It says it has seen a rise in requests for the longer term, fixed rate loans it offers as banks continue to withdraw lending to SMEs.
Marc Bajer, CEO of Hadrian’s Wall Capital, said: “Small businesses have spent the last ten years since the financial crisis struggling to secure finance and Brexit uncertainty is compounding this.
“Having access to finance over the long term, can be very important for small businesses planning for the future. If they are unable to access finance to secure a deal or fund an expansion, that could be very detrimental to growth.
“Although banks are no longer able to provide long term, fixed rate lending, businesses should be aware of the finance options available from alternative providers.”