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Banks reining in SME lending according to new report

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British businesses are increasingly worried about access to funding, with new data showing banks are reducing SME lending.

According to figures from fintech firm Iwoca, 77 per cent of brokers said that high street banks are reducing their appetite to fund SMEs. The information was collated from more than 100 SME finance brokers who submitted over 2,500 finance applications for SMEs in March.

The report also showed just under 40 per cent of brokers have seen an increase in applications for funding being rejected over the last quarter. In more positive news, the most common reason for SME loan applications according to over half of brokers was to expand the business.

The retreat of retail banks from SME lending comes as the sector is already under pressure from proposed regulatory changes.

Data shows that over 1m SMEs are on fixed energy contracts, negotiated with providers when prices were at their peak. This means the firms are locked into paying expensive bills despite the drop in energy prices.

The data showed that concern about recession had reduced. While 60 per cent of brokers reported it as a concern, this was down from 77 per cent in the fourth quarter last year.

Responding to the data, Joanna Reynolds, Managing Director, Bordeaux & Burgundy said : “In uncertain times it’s more important than ever to give SMEs access to the financial support they need to hire, grow, and expand. Scale-up businesses need strong backing to move forward, especially with the cost of living crisis hitting workers hard.”

“Having the funds available to invest in dedicated marketing campaigns and new business initiatives is the key to companies reaching their next stage of development. With industry leaders feeling cautiously optimistic about the year ahead, getting behind the next generation of entrepreneurs should be a top priority for banks,” said Reynolds.

Fintech expert Neh Thaker, co-founder, HedgeFlows, said, “SMEs make up the vast majority of UK businesses, so giving them access to funding and support to grow is critical for driving the economy forward. Business leaders have shown remarkable resilience in the face of surging inflation, high interest rates and the cost of living crisis, with the country set to swerve a recession, according to the latest data. If our SMEs thrive, we all benefit, in terms of job creation, skills and GDP, so lenders should be getting behind entrepreneurs and equipping them with the resources they need to expand internationally, invest in the latest talent, and move our economy forward.”

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