Meeting the SME needs of tomorrow
The unfavourable financial circumstances of SMEs continue to stall their growth prospects. Banks are seen as the trusted business partner, whether through finance solutions or mentorship, but how can they help accelerate growth amid the uncertain economic outlook?
Taking on more finance – less appealing for SMEs?
According to research from the British Chamber of Commerce’s (BCC) Insights Unit, difficulty in accessing funding means small- and medium-sized businesses are unable to unleash their full growth potential. Banks are coming under increasing pressure to help SMEs grow, whether by raising capital or effecting digital transformation, with tailored financing solutions. Assets and equipment finance, for instance, can help bolster growth and competitiveness through new tools and technology.
Jonny Heseldine, Policy Manager, British Chambers of Commerce (BCC), argues that while there are plenty of financing solutions available that meet businesses’ growth-strategy criteria, they don’t necessarily meet the acute challenges of businesses across the board. “Many companies are telling us they’re looking for a finance solution but not going through with it,” he says.
Banks beyond finance: is mentoring the answer?
Despite the various offerings available in the market, SMEs are not always catered for by banks. The lockdowns of 2020 and 2021 were an incredibly difficult time for small businesses as they struggled to make ends meet. While they did receive monetary aid, the outstanding debt commitments from incentives like the Recovery Loan Scheme may have reduced their capacity for risk. “Many businesses are still overleveraged from the pandemic,” says Haseldine.
The BCC Insights Unit Business Outlook Survey of 2023 suggests that 72% of businesses with fewer than 50 employees haven’t accessed finance from an external lender within the past year. However, there are non-financial ways banks can help small aspiring businesses accelerate their growth plans, including mentorship.
While fewer people are visiting physical branches today, business owners may still want to leverage the market expertise from their bank in a face-to-face environment. “We’re seeing many more traditional high-street banks increase their outreach – especially to the SME community. Banks cannot simply deliver a product or service, and then sever ties. They can provide services potentially to help business startups scale and grow,” explains Haseldine.
SMEs: a risky investment for banks?
Some business owners are concerned that banks are narrowing their lending criteria and tightening their risk measures. “Many small businesses would argue that banks’ appetite for risk is getting worse, not better. Lending profiles are becoming less diverse, in terms of gender, ethnicity and age,” says Haseldine.
In view of cost-of-living pressures, which continue to affect UK businesses already hesitant to apply for loans and struggling to meet debt commitments, the Financial Conduct Authority has cautioned banks to treat SMEs more fairly.
Banks may be starting to address challenges and support SMEs more specifically. In the first quarter of 2024 many of the traditional banks increased their lending to SMEs, data from major high street lenders shows. UK Finance, a trade association in the banking and financial services sector, highlighted a 15% increase in lending to SMEs compared with Q4 of 2023.
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