Small and medium businesses are struggling to get funding, new research reveals

Failure to access sufficient capital could hamper productivity growth

Stephen Little
Tuesday 12 December 2017 18:13 GMT
High street banks have been less willing to lend to small businesses since the financial crisis
High street banks have been less willing to lend to small businesses since the financial crisis (Getty/Bloomberg)

More than half of small and medium-sized businesses (SMEs) in the UK are struggling to get the funding they need to help boost investment and productivity, new research has revealed.

According to merchant bank Close Brothers, only four out of ten SMEs have been able to secure funding from their chosen lender.

Of these, 34 per cent felt that the capital available to them wasn’t enough to fund their investment plans, while a further 24 per cent said that the type of funding they had used was too expensive.

Since the financial crisis, Britain’s high street banks have been less willing to lend to small businesses over fears they might default.

However, the market has recently started compensating to some degree with the growth of challenger banks and peer-to-peer lenders – giving businesses more options.

“Lenders could certainly do more," said Mike Cherry, chairman of the Federation of Small Businesses.

"One in five of our members had their credit applications turned down in the third quarter, while over half were offered a lending rate of over 4 per cent,” he added.

Adrian Sainsbury, banking division managing director at Close Brothers, said the right funding was “integral” to improving productivity and investment.

“Low productivity hinders economic growth and improving productivity is vital, particularly as the UK prepares to leave the EU. Given their importance to the economy, SMEs will be central to potential productivity gains,” he said.

“SMEs need access to the right finance and support to invest in training staff or adopting new technologies so increasing awareness of financial options is crucial.

“Bespoke funding solutions which align to specific needs and growth plans are always preferable to a one-size-fits-all approach.”

Close Brothers polled nearly 1,500 SME decision makers across the UK, France and Germany.

Its research also revealed that German SMEs were better able to access funding than their UK peers, while French SMEs were less able to do so.

Just 33 per cent of French SMEs were able to access capital through their chosen funding route, compared to 47 per cent of German SMEs.

The current level of UK productivity has flat-lined since the financial crisis.

Last month, the Office for Budget Responsibility downgraded its estimate of productivity growth by 0.6 per cent on average for the years to 2022.

It said that while productivity growth is expected pick up slightly in the future, it will remain significantly lower than its pre-crisis trend rate over the next five years.

This is bad news for UK workers as slower productivity growth means wages will not rise as quickly.

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