High street banks ramp up SME lending to highest since 2022
High street banks are scaling up their lending to small businesses, with the first quarter of 2022 hitting the highest amount since 2022.
Lenders issued £4.6bn worth of loans in the first three months of the year marking a 14 per cent year-on-year jump.
The rise was driven by a surge of lending to agriculture, manufacturing, wholesale and retail sectors, according to a fresh report from the banking industry body UK Finance.
This comes after top bank bosses were summoned for talks with Ministers in May following a report from the Department of Business and Trade revealed the success rate for small firms applying for loans was below 50 per cent.
The small- and medium-sized enterprise (SME) lending landscape has drastically changed in the last few years.
Research from the British Business Bank reveals challenger banks now account for 60 per cent of annual gross bank lending to SMEs. In 2019 the ‘Big Four’ banks – HSBC, Natwest, Barclays, Lloyds – issued 90 per cent of loans.
Allica Bank, the UK’s fastest-growing fintech which caters towards SMEs, revealed a “drastic collapse” in SME lending of up to £65bn over the last 25 years.
Allica’s boss Richard Davies previously told City AM the area was a “barren wasteland” five to 10 years ago.
Changing tide
But UK Finance’s latest Business Finance Review the landscape is shifting as high street banks return to small business lending.
The report shows momentum behind loan and overdraft approvals, which were 37 and eight per cent higher year-on-year.
Lending to the smallest business – those with up to £2m in annual turnover – grew significantly with a 30 per cent year-on-year increase. For medium-sized firms, growth was nine per cent.
David Raw, managing director of commercial finance at UK Finance, said: “SMEs are a vital part of the UK economy, and it is encouraging that lending to them continues to go up.”
Raw called for an extension to the government’s Growth Guarantee Scheme, which was announced by Chancellor Rachel Reeves in April to provide around £500m of additional lending capacity to more smaller businesses across the UK.
“The regulatory environment is important and that is why we think the government should make the Growth Guarantee Scheme permanent and increase the size of the scheme’s budget,” he said.
“This would help support even more SME lending.”