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Peer2Peer Finance News | August 24, 2019

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Funding Circle report finds banks are still snubbing SMEs

Funding Circle report finds banks are still snubbing SMEs
Marc Shoffman

BANKS are still giving small – and medium-sized enterprises (SMEs) the cold shoulder a decade on from the financial crisis, new research claims.

A report, published by Oxford Economics and peer-to-peer business lender Funding Circle, found small firms are still struggling to access finance and when they do it is often on worst terms than their larger counterparts.

The Big Business of Small Business report found small business lending accounts for only two per cent of UK banks’ balance sheets, and this figure is even less in countries such as the US at 0.7 per cent and the Netherlands at 0.6 per cent.

Since 2015 in the UK, lending to large firms has increased by 43 per cent, whilst during the same period lending to SMEs has decreased by three per cent, the report found.

This is despite the number of UK SMEs increasing by more than 260,000 over the same period.

When SMEs do get bank finance, the report claims, it is often at more expensive rates than larger firms.

The lack of support for SMEs from traditional providers has resulted in more turning to non-bank options such as peer-to-peer lending when seeking finance, with the report claiming five per cent of firms applying for for external finance over the previous 12 months applied to an online platform, up from one per cent in 2014.

Read more: Funding Circle lowers return projections

Read more: Funding Circle unveils £1bn funding line

In contrast, the share applying for a bank loan fell from 48 per cent to 38 per cent over the same period.

Among Funding Circle’s own borrowers, 73 per cent approached the P2P lender ahead of a bank, and 84 per cent said they would return to the platform.

“This sector has been hugely underserved globally for decades despite the economic importance of SMEs,” Samir Desai (pictured), chief executive of Funding Circle, said.

“Small businesses mean big business, and that’s why we’re passionate about helping them to succeed.”

Read more: SMEs accessing loans ‘within hours’ through Bank Referral Scheme