Research from the Federation of Small Businesses (FSB) shows that successful applications for finance among members have dropped to the lowest level on record.
Conversely, figures from the Bank of England show the annual growth rate of lending to big corporates has increased significantly since the start of the year.
It has led to the accusation that banks are “pulling up the drawbridge” on lending to small businesses.
The FSB’s quarterly Small Business Index (SBI) show just 43 per cent of applications have been approved and that just nine per cent applied in the first quarter of 2022. That is the lowest number since SBI records began.
Lack of finance ‘a threat to economic growth’
The business body has now called for a culture change in financing and has warned that economic growth will be threatened otherwise.
Commenting on the survey, 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.”
A large proportion of what is available is being used to cover cashflow problems, often caused by late invoice payments from customers, according to the FSB.
Managing cash flow problems caused by late payments
The survey shows that 61 per cent sought traditional overdraft or loan products, while a quarter applied for asset-based finance, such as invoice finance.
Other methods included smaller numbers seeking funds through peer-to-peer platforms (seven per cent) and/ or crowdfunding (five per cent).
Your accountant will be able to provide advice and guidance.
How can businesses obtain necessary finance?
Measures that might persuade lenders to provide finance might include:
• Keeping balance sheets and other documentation to show the business has been well run
• Improving the company’s credit rating
• Producing a business plan that is strong, concise and clear
• Opting for the appropriate kind of loan, like instalment, short term or line of credit
• Having the ability to provide collateral for the loan
If you are looking to finance your business, you should seek professional advice beforehand.