Banks ‘pulling up the drawbridge’ on small business lending

The UK’s largest business group has warned that banks are “pulling up the drawbridge” to small companies and stifling economic growth, as successful finance applications plummet to the lowest level on record.

The Federation of Small Businesses (FSB) found that fewer than one in ten small firms applied for finance in the first quarter of 2022, the lowest proportion since its records began.

Of those, just 43% had their applications approved, fewer than at any other time.

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.”

Of the few firms that did manage to secure finance, four in ten planned to use credit to manage cashflow, considerably more than the numbers planning to use funds for equipment updates, expansion, or recruitment.

More than 60% of the small firms surveyed said they had been impacted by the late payment of invoices over the first quarter of this year, with around a quarter saying that has become more common.

One in ten of the 1,200 companies surveyed said they planned to downsize this year.

McTague called for a “culture change” among lenders, urging them to take an “objective approach” to small business finance.

Audit committees should also be put in charge of supply chain practice to address the issue of late payment from big corporates, he suggested.

“The result would be win-win: strength in corporate supply chains and a thriving small business community driving economic growth from the ground up,” McTague said.