SMEs face growing credit crunch
Small and medium sized businesses are facing a growing credit crunch, according to new research.
A report by the Federation of Small Businesses (FSB) has revealed they are finding it harder to access finance and are seeing credit costs rise.
The figures show barely more than half (53 per cent) of SME credit applications were successful in the final three months of 2023.
That figure is significantly down from a 62 per cent success rate in the previous three months.
Of those whose credit application was successful, a third (33 per cent) were offered an interest rate in excess of 11 per cent.
The report also reveals that the average rate offered was around 9.3 per cent, up from 8.9 per cent in Q3 2023.
The most common reason for seeking finance in Q4 2023 was cashflow (55 per cent), up from just 26 per cent the year before and from 41 per cent in Q3 2023.
FSB says that other main drivers of finance applications were to expand the business (19 per cent) and to upgrade equipment (15 per cent).
Caroline Lavelle, the organisation’s chief commercial officer, said: “It’s clear that access to affordable finance has become harder recently.”
Last summer the House of Commons’ Treasury Committee launched an inquiry into small business access to finance and small and medium-sized enterprise lending.
The cross-party committee of MPs is examining the key challenges SMEs face when seeking finance, the regulation of small business lending, and the role the government can play in enhancing lending to small businesses.
The MPs said they would be investigating the accessibility of finance, the role of financial innovation in business lending, and the role of the Bank of England’s Term Funding Scheme, credit reference agencies and government state aid in encouraging small business lending.
The committee is also exploring whether SMEs have adequate access to a complaints’ procedure for disputes with banks or lenders.
Meanwhile, small business confidence lost ground in the final three months of 2023, reversing gains made earlier in the year, according to the FSB’s latest quarterly Small Business Index (SBI).
The organisation is calling for “strong measures” in March’s Budget to promote growth, including an increased VAT threshold of at least £100,000.
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