iwoca SME Expert Index: High street banks reduce appetite to fund SMEs, with worse yet to come

• Over eight in ten (83%) brokers believe high street banks are reducing their appetite to fund SMEs, with lending options set to worsen in coming months.
• More than half (51%) now have a negative view of major banks, as data suggests four consecutive quarters of scaled back SME finance support.
• This comes as eight in ten brokers (82%) believe that SME demand for capital will rise in the next six months.

Over eight in ten SME finance experts (83%) believe that high street banks are reducing their appetite to fund the UK’s 5.5m small and medium-sized businesses, according to iwoca’s latest Q3 2023 SME Expert Index.

The analysis shows that the drop in lending is set to worsen, with three quarters of brokers (75%) predicting that high street banks will continue to reduce their access to working capital over the next twelve months. 

Eight in ten brokers (82%) also predict that SME demand for capital will rise in the next six months, widening the financing gap business owners are already experiencing.

Negative perception of high street banks

As traditional routes for small business financing reduce and are unable to meet the needs of SMEs, more than half of brokers (51%) report a negative view of high street banks. 

iwoca’s data reveals that this is the fourth consecutive quarter where more than eight in ten brokers have warned that the major banks have reduced their support to the UK’s small businesses. 

Cash flow concerns as inflation persists

Data from brokers comes as the Office for National Statistics revealed that inflation remains stubborn at 6.7% in the year leading up to September. 

Three in five SME financing experts (61%) say that SME demand for loans has been driven by the need to manage cash flow rather than to fund company growth – up a quarter in just three months. 

This comes as iwoca’s latest figures show that six in ten (58%) believe the Prime Minister won’t meet his target to halve inflation by the end of the year. 

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Colin Goldstein, Commercial Growth Director at iwoca, said: “Sticky inflation means SMEs are focussed on short-term funding to help them through this period. Against this backdrop, high street banks are reducing their appetite to lend to the UK’s 5.5 million SMEs – so the funding gap is widening.

“This research demonstrates in the clearest possible terms that SME funding options are being stripped back – better suited lenders can and must step into the place of traditional banks. Small and medium-sized businesses need our vital financial support on the long road to economic recovery.” 

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Nick Mayhew, Director of Peak Business Finance, said: "Raising funding from high street banks has always been a challenge, and it feels even more difficult today. With more and more businesses seeing slower financial performance as well as worsening credit profiles, access to funding becomes sparse.

"Since CBILS wound down, brokers have been experiencing challenges with banks around refinancing asset-based facilities, which could be driving a negative view of high-street lenders. High street banks can be an option for straightforward working capital needs, but SMEs are currently better served by the alternative lending market."