Fall in SME borrowing could prove detrimental to growth, FSB warns

A leading business body has warned that a noticeable decline in borrowing could be detrimental for the UK’s small and medium-sized enterprises (SMEs).

The Federation of Small Businesses (FSB) has voiced concerns that the future growth of Britain’s SMEs could be at risk, after new research published last week revealed that bank lending to non-financial SMEs fell by as much as £698 million in July.

Meanwhile, separate research from the Bank of England suggests that lending to the UK’s very smallest businesses was down by £200 million in the same month.

According to the FSB, the “unprecedented uncertainty” of recent times has reduced smaller firms’ appetite for finance in the short-term.

However, Mike Cherry, National Chariman of the FSB, has warned that such attitudes today could prove detrimental to SMEs tomorrow.

“Small business’ appetite for new finance is waning against a backdrop of unprecedented uncertainty, anaemic domestic growth and inflationary pressure weighing on consumer demand,” he said.

“Only one in seven small firms are currently applying for external finance, with demand for bank loans falling significantly over the last year, although this is not driven by a switch to alternative lending.

“These trends add to a convergence of factors that could threaten small business finance, investment and growth ambitions in the medium-term,” he said.

“Investment intentions are not where they should be and firms will only seek growth finance again when they have a clearer sense of what the future holds.”

The FSB’s own research suggests that just 14 per cent of SMEs applied for external finance in the three months to June 2017.