Bank net lending to UK small businesses has fallen significantly, totalling £518m in 2018 compared with an average of £2bn over the previous three years. Alternative finance provider IW Capital has been looking at the importance of SME support to the UK economy.
Since 2015 in the UK, lending to large firms has increased by 43%, whilst during the same period lending to SMEs has decreased by 3%.
In the UK, small business lending accounts for only 2% of banks’ balance sheets.
SMEs make up around 98% of businesses in the UK private sector and contribute £1.9 trillion each year towards the economy of the UK. Furthermore, the sector accounts for the employment of around 16 million people in the UK. In other words, the health and wealth of SMEs will directly affect the state of the UK economy. The strength of this arena depends heavily on the availability of growth funding, which has become increasingly difficult to secure since the 2008 financial crisis.
This is where the alternative finance arena has stepped in, plugging the investment and funding gap. The total value of the alternative finance market in the UK grew 35% to £6.2bn during 2017, showing the huge growth and importance of this area.
Luke Davis, CEO of IW Capital, said of the recent changes in the SME lending sector:
“Since 2008, banks have become more and more reluctant to lend to small businesses, especially those who are not asset-backed or are IP-based. This is one of the reasons why the alternative finance market has grown at such a fast pace in the last few years, with SMEs using innovative funding sources to meet their growth needs.
Highlighting the importance of small business to the UK economy compared to large firms is a key part of ensuring that small businesses continue to grow with alternative finance now taking over from large banks.
At IW Capital, we have experienced record deal flow and buoyant investor confidence. This reflects the confidence in lending to small businesses in the UK that represent a fantastic range of innovative, high growth firms.”