High street lenders are squeezing loans to this vital part of the economy, says report.
High street banks continue to give British small businesses short shrift when it comes to lending, according to a new report.
Loans to small firms in the UK account for 2 per cent of the balance sheets of traditional banks, said a new survey by research body Oxford Economics and peer-to-peer business lender Funding Circle.
It adds the situation is getting worse, with high street bank lending to large firms jumping by 43 per cent since 2015, while lending to small businesses has slipped by 3 per cent over the same period.
The report, called The Big Business of Small Business, added that when small firms can find high street funding “it is typically on worse terms than those received by larger businesses, both in cost and the terms associated with the loans”.
Small business growth
It added this “trend” is also seen in the US, Germany and the Netherlands.
This is despite the fact that small firms form the backbone of most modern economies. Last year Britain’s small firms comprised 5.6 million companies, employing 16.3 million, with a combined annual turnover of £2trn, or 52 per cent of all private sector revenues, according to the Federation of Small Business.
However, small firms in the UK have continued to grow, adding over 260,000 firms since 2015, said the Oxford Economics report.
It said: “The lack of support for SMEs from traditional providers has resulted in more turning to non-bank options such as online lending when seeking finance, driving huge economic growth as a result.”
Small business lender Funding Circle has lent more than £7bn to 68,000 businesses globally since it was founded in 2010.
Oxford Economics said the FTSE 250 firm - which operates in the UK, US, Germany and the Netherlands - made a £6.5bn contribution to global gross domestic product (GDP) last year, including a £4.1bn addition to the UK economy.
Funding Circle co-founder and chief executive Samir Desai said: “This sector has been hugely underserved globally for decades despite the economic importance of SMEs [small and medium-sized enterprises]. Small businesses mean big business, and that’s why we’re passionate about helping them to succeed.”
Oxford Economics managing director of economic consultancy Sam Moore added: “This report offers a stark reminder both of the critical role that SMEs play in all four countries analysed, and the uphill challenges they face when dealing with the traditional banking sector.”
Fintech firms have chased the lucrative small and medium-sized enterprise (SME) market that has felt undeserved since the financial crisis more than a decade ago, which saw traditional banks tighten lending to smaller firms.