The Federation of Small Businesses (FSB) has announced the findings of its quarterly Small Business Index (SBI) and revealed that lending to SMEs in the UK is the lowest it has ever been with less than one in ten small businesses applying for finance in Q1 of 2022.

Added to that, of those that did apply, only 43% were successful, another new low.

Those that did apply gave the planned usage for the funds as follows:

• 42% – managing cash flow
• 21% – to update equipment
• 19% – to fund expansion plans
• 4% – to fund recruitment

The type of finance applied for was also reported, as follows:

• 61% – overdraft or loan products
• 25% – asset based finance
• 12% – peer to peer or crowdfunding

The FSB has taken these statistics as an indication that lenders are ‘pulling up the drawbridge’ on small businesses, which it says will ‘further stifle economic growth’ in the UK.

The latest Bank of England (BoE) figures also showed that the annual growth rate of lending to SMEs was at a record low, despite small businesses making net debt repayments of close to £1bn in March alone.

The FSB also highlights that the lending to big corporates, by contrast, has ‘increased significantly since the start of the year’.

Martin McTague from the FSB said: ‘Lenders pulling up the drawbridge for small firms will threaten our already faltering economic recovery. Businesses are born every day across the UK, and many need funding to get off the ground, ensuring they reach a stage where they’re profitable and creating opportunities.

‘A big chunk of what little finance is being accessed is being used to manage cash flow challenges as our late payment crisis worsens, rather than for much-needed investment and innovation.’

‘A lot of those who’ve worked tirelessly to adapt, survive, and thrive over lockdowns need finance too, empowering them to take their firms to the next level, driving our economic recovery and the transition to net zero in the process.’

The FSB further calls for a culture change within the lending industry stating that banks need to take an ‘objective approach’ to small business finance.

We quite agree! 

If you’re looking for funding, take a look at our recent post around Recovery Loans, which will disappear in June 2022. Now is the time to explore them as an opportunity to access funds under the most favourable of terms.