The fact that less is being lent to SMEs in 2015 is due to a problem of supply rather than a reduced appetite for credit among the businesses themselves, according to OakNorth CEO Rishi Khosla.
Figures released by the Bank of England (BoE) today revealed lending to SMEs has fallen by 0.7% in the past 12 months. The BoE Statistical Report on Money and Credit for May also revealed gross lending to SMEs was £4.4 billion in the previous six months – down from an average of £4.9 billion in the second half of 2014.
Rishi commented that this trend comes despite the fact that “confidence and appetite for borrowing is increasing” among small businesses.
“So the fact that lending to these companies has fallen points to a problem in the supply of finance,” he said.
“The tight political pressure that we’ve seen over the last five or six years on large banks to lend to SMEs has loosened significantly in recent months and I think it has reduced lending.”
Khosla also posited the theory that the fact that the Funding for Lending Scheme ends in six months means banks are already starting to “wean themselves off it”.
“The wider problem around lending smaller sums of money is that it requires the same amount of work as lending larger sums, but for less return,” he said.
“Additionally, lending to them is dominated by property-backed loans which is punitive for companies that aren’t property-rich. There is clearly a requirement for new lenders to tackle the issues that small businesses face in securing funding.”
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