A report finds small business owners looking to apply for business loans and credit cards can expect to see less competitive rates and even less funding this year.
Small business lending is not looking rosy in the UK. That development has little to do with the health of the companies looking for funding but rather bad business decisions made thousands of miles away in California and Switzerland. A policy made by the Bank of England late last year is also having a huge impact.
In November 2022 deep within a report by the Bank of England’s Prudential Regulation Authority, the BOE called for a 32% increase in challenger and specialist bank capital requirements for SME lending alongside other capital constraints for most IRB banks. This move will very likely reduce overall SME lending by 25% or up to £44bn, according to economists from consultancy Oxera.
So it appears small business lending was already headed towards a rough patch long before the collapses of Silicon Valley Bank and Credit Suisse.
SMEs left out of the UK’s bigger economic picture
“There is a real risk that lending to the SME sector may become even more expensive, leading to a reduction in the provision of credit and higher interest rates,” said Oxera in a report. “If the SME sector finds it more difficult to access credit and must pay higher interest rates for borrowing, it is likely that this will compromise the ability of SMEs to scale up and create jobs.”
It makes any small business owner think whether the Chancellor of the Exchequer Jeremy Hunt had any idea that this was brewing in the background.
Mr Hunt outlined back in January how he intends to deliver economic growth over the coming years:
“Our plan for this year remains to halve inflation, grow the economy and get debt falling. But all three are essential building blocks for much bigger ambitions for the years beyond.
“World-beating enterprises to make Britain the world’s next Silicon Valley. An education system where world-class skills sit alongside world-class degrees. Employment opportunities that tap into the potential of every single person so businesses can build the motivated teams they need.
“And opportunities spread everywhere just as our talent is spread everywhere.”
Hunt, since that statement, has announced in the Spring Budget an even more ambitious target to bring down inflation closer to 2 per cent by the end of 2023.
FSB National Chair Martin McTague is not convinced that small business growth will reach its potential this year due to the Chancellor’s lack of focus on small businesses and their role in the British economy in his Spring Budget.
“The distinct lack of new support in core areas proves that small firms are overlooked and undervalued,” said McTague.
“Budgets are about tough choices, and with today’s billions of pounds being allocated to big businesses and households, 5.5 million small businesses, and the 16 million people who work for them, will be wondering why the choice has been made to overlook them,” he said.
In his estimations, the Budget failed to offer help on energy costs to small firms and there was no move to exempt more smaller firms from business rates.
The FSB said there was a clear lack of understanding of the role that SMEs will need to play in economic recovery: “Trickledown economics here simply does not work,” said McTague, referring to the £27bn given to big business.