New analysis from online marketplace lending site Funding Options has revealed that bank loans to UK small and medium-sized enterprises are falling by £100 million a month.
The company has said that recent regulations pertaining to bank overdrafts are the cause of the decline in lending volumes. Adding that there is little prospect of the trend reversing, it’s clear that sourcing alternative means of finance over the coming years will become increasingly vital for SMEs.
Since the recession, small business overdrafts have become progressively more unattractive for banks, which have strived to reduce amounts of unsecured lending in the wake of new rules ushered in on the burning coattails of the financial collapse.
The figures pay testimony this. The Funding Options study shows a fall of 13% in the amount SMEs have been borrowing in bank overdrafts in the 18 months between the end of September 2014 and the end of March this year – a fall from £14 billion to £12.1 billion.
Furthermore, over the past five years, the value of bank overdrafts has plummeted 42% – down from £20.9 billion in April 2011.
“Even the most successful SMEs are at risk of their overdrafts being cut with almost no notice,” said Funding Options Chief Executive Conrad Ford in a statement.
“Demand for SME funding is still as strong as ever, but the fact is that banks have to question the logic of extending overdrafts to this section of the economy,” Ford continued. “This is not so much about small business’ ability [or] creditworthiness; this is purely a result of how banks are being forced to operate post-credit crunch.”
New SMEs are amongst those least likely to be accepted for credit from the bank, and therefore it is imperative that alternative sources of raising capital are made available to them, and, just as importantly, that the alternative finance sector at large continues to raise its profile as more and more SMEs will be relying on its offerings for funding.