A forecast that bank lending to businesses will rise this year for the first time since the financial crisis hit is welcome, despite the fact that small business lending fell by nearly £5.5 billion in June. Economists at the EY Item Club have said that businesses borrowed £103.4bn from banks in the first half of 2015, up from £88.6bn in the same period of 2014.
However, there remains a degree of scepticism among small business owners about their chances of securing bank lending and a perception, rightly or wrongly, that banks are still not on the side of small business. Although the BBA, the leading trade association for the UK banking sector, says that more than two thirds of small businesses have their loan applications approved and that banks are more willing to lend than small businesses, a survey last year suggested only 37% of small businesses planning to apply for finance believed they would get approval from their bank.
Certainly one bank looking to target the sector is TSB. Its CEO Paul Pester recently told the Daily Teleraph that the next stage for his bank was a new drive into the SME market. The takeover of TSB by Banco Sabadell was recently given the go ahead, a bank whose history is almost entirely geared around small business lending.
However, the lending landscape has changed significantly since the start of the recession to the point that small businesses are more open to alternative sources of lending than ever before. Peer-to-peer lending, invoice financing and even crowd funding have begun to flourish and are now established alternatives to bank funding. Banks are sensing that there may finally be genuinely serious threats to their position as the only major lending option and are reacting accordingly.
Cash is the lifeblood of any business and cash flow is critically important, although many small business owners still fail to realise that. Wages need to be paid, overheads met, and stock or raw materials bought. So however profitable a business might be, whatever its potential is, and whatever the value of its invoice book, it needs good liquidity to meet immediate costs. Without liquidity it will fail. Whilst the banks have held back over the past few years small businesses have had to look elsewhere.
The important thing to remember is that the UK has to get this right if its SME sector is to continue to flourish and drive economic growth and that means recognising the small business finance sector no longer revolves solely around conventional forms of lending.