ALMOST half of UK small- and medium-sized enterprises (SMEs) have experienced barriers in accessing finance, while only a fifth say banks’ advice always meets their needs, according to a new report.
High-street banks account for the lion’s share of SME lending, but they cannot meet the varied requirements of small businesses looking for finance, said the research from Close Brothers – indicating an opportunity for alternative finance providers.
The financial services group surveyed over 1,000 small business owners about their changing needs throughout their growth stages. 22 per cent said their lender did not understand their specific needs, while a further 25 per cent said their lender did not understand their sector at all.
“This poses a significant challenge for the SME sector, especially as a large number of SMEs (38 per cent) only turn to high street banks for information and advice about the most suitable types of finance for their business,” said the report.
Just over a fifth of SMEs have been turned down for finance, with half of this group having been turned down more than once.
In the case of first time borrowers, the rejection rate is around 50 per cent. Over a third of these SMEs gave up after their first rejection, unaware of alternative forms of financing, the report said.
Read more: Banks tighten business lending
The study questioned why more SME borrowers are not exploring alternative financing, which still makes up a small proportion of the market, despite rapid growth.
The main reason was that small businesses see new forms of financing – including peer-to-peer loans – as unsuitable and complicated, the survey found.
“Just like the big banks, if lenders in these sectors want to prove themselves to SMEs they will need to take the sufficient time required to understand the concerns of each size and sector of SME,” it said.
The Close Brothers research heralded the long-awaited launch of the bank referral scheme, whereby banks will refer small businesses that they have rejected for finance to three aggregator platforms. Alternative finance providers, including P2P lenders, can then provide quotes for loans via the platforms if they wish.
“Historically SMEs have not always found it easy to source the appropriate funding required to sustain or grow their businesses, but times have changed,” said Adrian Sainsbury, chief executive of Close Brothers’ commercial division.
“The recently announced government initiative means that in the near future high street banks will be required to offer a referral to any SMEs they turn down for finance, and that’s a positive and purposeful step both for businesses and the economy.”