Rachel Reeves has held conversations with the traditional high street banks about lending to SMEs and how their current criteria is hampering their growth. This is encouraging to see after what seems like years of SMEs being frequently turned down by their banks for finance.
Loan success rates have deteriorated over the years, falling to a 50% success rate compared to a pre-pandemic approval rate of 67% in 2018, according to a report from the Department for Business and Trade.
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This is undoubtedly due to risk; SMEs may have defaulted on the repayment of Covid recovery loans, making them a riskier prospect for credit. The strict lending criteria could therefore be justified, but consequently, it has also held back vital investment and ultimately impacted business and economic growth.
On the other side of this story is the independent lender, which has remained a constant presence for SMEs against a backdrop of banking caution. We don’t need a pat on the back for this, but we do need the SME owner to know that banks are not their only option.
Giving SMEs a viable alternative
Understanding SME access to finance is something we have invested in over the past five years, and in a recent survey we asked 500 SME owners if they had been turned away by their bank and if so, if they had looked elsewhere for finance. Six in 10 of those surveyed said they would choose their main bank for commercial finance. If banks are therefore acting more cautiously, that leaves a 60% majority of SMEs vulnerable to declined finance. Our survey did go further and found 35% of all respondents had been turned down by their bank. So that gives some sense of scale to the caution Rachel Reeves is trying to combat.
In terms of access to other options, only 27% of our survey respondents looked elsewhere when they were turned down, and we have taken that as a clear sign we have some awareness to build as lenders. Our intention has always been to be accessible; as an independent funder we have supported a wide range of businesses, large and small and across numerous industries, and we take our role in helping SMEs thrive – and in some instances, survive – very seriously.
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By GlobalDataSMEs need ease and creativity
Our role as an SME lender over the years has taught us that SMEs need more awareness of the funding solutions available to them. They need a lender that makes the various offerings and options easy to understand, and they also need access to advisors and intermediaries in helping them to apply.
Opening up mainstream lending to more SMEs is a necessary aim for the Chancellor, and Government underwriting may mean we see a higher success rate for SME funding going forward. There is a bigger picture, however. Not only has independent lending been more accessible than ever before, but we’ve also enhanced our finance solutions so they are more suited to what SMEs need right now.
Creative finance solutions, for instance, such as invoice and asset finance will look at specific assets where additional value can be unlocked. Likewise, the human underwriting process that accompanies independent lending means businesses’ nuances and complex credit histories can be factored into decisions.
If there is a solution to unlock more finance for SMEs, as an industry we welcome it. If high street banks can adapt their lending strategies and take on more risk to support more businesses, that is a good thing and our economy will be all the better for it. For the time being though, our door is, as always, wide open and our focus will remain on supporting SMEs with the finance they need to grow.
Ed Rimmer is CEO at Time Finance
FAQs
Why are SMEs struggling to access finance from high street banks?
Loan approval rates for SMEs have declined, falling from 67% in 2018 to around 50% post-pandemic. Banks have tightened lending criteria, partly due to increased perceived risk following defaults on Covid support loans.
What role do independent lenders play in SME finance?
Independent lenders offer an alternative to traditional banks, often providing more flexible lending terms, quicker decisions, and human-led underwriting that takes business circumstances into account.
How aware are SMEs of alternative finance options?
According to Time Finance, 60% of SMEs still go to their main bank first, and only 27% look for alternative finance if declined. This suggests low awareness of non-bank funding routes.
What types of finance solutions do independent lenders offer SMEs?
Common products include Invoice Finance, Asset Finance, and tailored funding solutions. These are often designed to unlock working capital based on assets or receivables.
How could government policy improve access to SME finance?
Reforms could include encouraging bank lending through government underwriting or guarantees, and promoting awareness of alternative lenders as viable funding partners for SMEs.
