ArchOver warns of “funding crisis” as banks turn their back on SMEs

ARCHOVER has blasted high street banks for creating a “funding crisis” among small firms.

Research commissioned by the peer-to-peer business lender found that one in five UK businesses are rejected for a loan by banks and 17 per cent were put off or unable to apply for any further loans.

This is leading to a potential “funding crisis”, ArchOver said, as banks scale back their lending and small businesses struggle to get the funding they need for digital transformation, new premises, new equipment, or short-term cash flow issues.

Furthermore, small- and medium-sized enterprises (SMEs) who seek financing are only receiving on average of 70 per cent of the agreed loan, the research found, meaning that 37 per cent were unable to launch a new product or service as a result.

255 management-level professionals were interviewed in the last quarter of 2018, all of whom were working in businesses with 50 or more employees that have sought finance in the last five years or are currently seeking finance.

Read more: Awareness of P2P rises among smaller firms

“The funding system for UK businesses is broken”, said Angus Dent, chief executive of ArchOver.

“2018 was a tough year to be an SME to say the least, but companies aren’t bowing down just yet – despite the best efforts of the banks.

“Our research shows that despite their optimism, high-growth companies are being turned away time and again by big funders who, we’re told, have postponed all decisions on sub-£10m loans until after 29 March. That businesses have to run into the arms of unscrupulous invoice discounters to find cash is an indictment of the finance industry’s treatment of British business.

“Brexit is about to make the funding picture even harder for businesses. But there are options that won’t ignore you or suck you dry. If they want to keep growing in 2019, UK companies need to look for financiers who’ll get to know them deeply and support them through the storm – not just make a quick buck from them.”

Read more: SMEs fear impact of Brexit on cashflow

ArchOver’s research also found that late invoice payments were a major source of cashflow problems for SMEs. Less than five per cent of those surveyed said that their invoices are always paid on time, while 34 per cent said that late payment had caused their business to fail.

However, cashflow issues and a lack of bank funding may encourage more business owners to consider alternative financing, ArchOver found.

Four in five (81 per cent) of respondents said that they have considered using invoice discounting to fix their cashflow problems, and 58 per cent of those who have used invoice discounting in the past now believe that P2P lending is safer. More than half (54 per cent) of business owners believe that they can get a better rate on their loan with a P2P provider than with a bank.

Read more: SMEs look to alternative funders in case of no-deal Brexit