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Lending to small businesses hits all-time low, new study finds.

The FSB's quarterly Small Business Index show successful finance applications plummeting to lowest level on record.

The Federation of Small Businesses (FSB), the UK’s largest business group is warning that banks “pulling up the drawbridge” to small firms will further stifle economic growth as its new Small Business Index (SBI) study shows successful finance applications plunging over the first quarter of this year.

Key notes from the new SBI study include:

  • Fewer than one in ten (9%) small firms applied for finance in Q1 2022, the lowest proportion since SBI records began. The share that saw applications approved (43%) is also at a record low.
  • The number of respondents describing the availability of credit as “good” (19%) has tumbled to its lowest point since 2016. A minority (44%) of successful applicants were offered a borrowing rate of up to 4% in Q1 – the figure is down 32 percentage points on the same period last year.
  • Of the few firms that did manage to secure finance, four in ten (42%) plan to use credit to manage cashflow, considerably more than the numbers planning to use funds for equipment updates (21%), expansion (19%) or recruitment (4%)
  • The majority (61%) of small firms were impacted by late payment of invoices over the first quarter of this year. A quarter (26%) say the propensity for late payment is growing – close to one in ten (7%) experienced late payment for the first time in Q1 of this year.
  • Of those that applied for finance, the majority (61%) sought traditional overdraft and/ or loan products. A quarter (25%) applied for asset-based finance, such as invoice finance, with smaller numbers seeking funds through peer-to-peer platforms (7%) and/ or crowdfunding (5%).

FSB National Chair Martin McTague said: "Lenders pulling up the drawbridge for small firms will threaten our already faltering economic recovery. Businesses are born every day across the UK – many need funding to get off the ground, ensuring they reach a stage where they’re profitable and creating opportunities."

"A lot of those who’ve worked tirelessly to adapt, survive and thrive over lockdowns need finance too, empowering them to take their firms to the next level, driving our economic recovery and the transition to net zero in the process."

Simon Jackson, Head of Lending, BEF responded: "The latest SBI study highlights an ongoing challenge faced by many of the small businesses that we encounter. As a responsible finance provider, BEF are committed to delivering flexible finance to businesses who are unable to secure high street lending."

"We are well placed to support businesses across all sectors with funding for a wide range of needs thanks to Start Up Loans, RLS loans, and our recently, launched Hospitality Recovery Loan Fund which supports one of the hardest hit sectors. We encourage any business looking for funding up to £250,000 to contact us at the earliest opportunity."

Read the full SBI press release.

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