• Lending to SMEs dropped by £2bn in one year and £4bn since 2013
  • Edinburgh and Manchester experienced largest decline in lending last year
  • When looking to the future, SMEs feel confident about securing finance
  • Early indicators demonstrate an uptick in lending to SMEs in 2016

Lending to small and medium sized businesses (SMEs) across the top 10 UK cities dropped by over £2bn1 in one year, according to the SME Growth Watch Report 2016, from specialist challenger bank Hampshire Trust Bank. However, early indicators in 2016 reveal an uplift in lending to SMEs and confidence that they can secure finance.

The research, conducted in partnership with the Centre for Economics and Business Research (CEBR), analyses the latest full year British Bankers Association (BBA) lending figures to reveal a decline in SME lending. Across the UK’s 10 major cities, outstanding lending dropped by 6% (£2bn) between Q4 2014 and Q4 2015. There has been a 12% (£4bn2) decline in lending levels since Q2 2013, when city data started to be collected.

However, when looking to the future, the research shows almost three in five (58%) UK SMEs feel confident about securing finance over the next 12 months. In addition, the latest quarterly BBA figures³ indicate there has been an expansion in SME borrowing this year.

CEBR states the reason for the previous decline in SME lending is two-fold. According to CEBR, tougher lending criteria set by banks have meant that those SMEs that wish to borrow have found themselves unable to do so. On the other hand, some firms have reduced their investment intentions and their need for borrowing, partially as a consequence of an unstable economic environment.

London is home to the largest number of SMEs and smaller businesses in the capital borrowed £77bn4 from financial organisations in 2015, according to the research, however this is a 6% decline compared to 2014 levels. Edinburgh and Manchester experienced the largest decline in borrowing levels between Q4 2014 and Q4 2015, with a drop in lending of -9% and -8% respectively.

Value of outstanding lending to top 10 UK cities

CityOne year comparison of lending levels [Q4 2014 – Q4 2015]Comparison of lending levels since city data has been collected [Q2 2013 – Q4 2015]
£ change% change£ change% change
London-£1,208,242,285 (-£1bn)-6%-£2,437,547,670 (-£2bn)-11%
Birmingham-£164,506,838 (-£165m)-6%-£385,110,475 (-£385m)-14%
Manchester-£139,426,399 (-£139m)-8%-£462,729,360 (-£463m)-21%
Edinburgh-£109,730,667 (-£110m)-9%-£163,435,440 (-£163m)-13%
Bristol-£106,115,762 (-£106m)-7%-£238,146,403 (-£238m)-15%
Sheffield-£94,753,769 (-£95m)-7%-£84,932,942 (-£85m)-6%
Glasgow-£92,600,660 (-£93m)-7%-£141,834,394 (-£142m)-10%
Tyneside (Newcastle and Gateshead)-£74,527,682 (-£75m)-5%-£39,184,739 (-£39m)-3%
Cardiff-£60,673,528 (-£61m)-5%-£212,036,084 (-£212m)-16%
Leeds-£60,162,918 (-£60m)-5%-£137,706,593 (-£138m)-11%
TOTAL£-2,110,740,508 (-£2bn)-6%-£4,302,664,101 (-£4bn)-12%

However, when looking to the future, 58% of UK SMEs feel confident about securing finance over the next 12 months. According to the report, SMEs in the North East and North West are the most positive, with 70% of regional firms feeling confident they will be able to access the relevant external funding required for expansion, compared to 60% in London.

The SME Growth Watch Report 2016 also identified that medium sized businesses5 are more confident about obtaining finance, compared to their smaller counterparts – 64% to 57% respectively. Overall, only one in 10 (11%) considered access to finance as a key barrier to their plans for future growth.

Nina Skero, Managing Economist at CEBR, said: “With SMEs across UK’s top 10 cities forecast to contribute £217bn to the economy by 2020⁶, the study highlights how vital it is to nurture the optimism they are demonstrating if they are to continue to be the engine room of the economy. Despite the confidence displayed by SMEs about securing finance in the future, the past data shows a steady decline in lending. We believe the reason for that is two-fold as a tougher lending criterion has meant that some SMEs that have wanted to borrow have been unable to do so. At the same time, some firms have reduced their investment intentions, partially as a consequence of an unstable economic environment.

“We expect the importance of smaller firms to the country’s economy to increase in the coming years and hope this research will inspire business leaders across the UK to invest in their growth strategies.”

Mark Sismey-Durrant, Chief Executive at Hampshire Trust Bank, said: “For too long, larger lenders have dominated personal and business banking and this has had a negative effect on SMEs, which often do not meet the lending criteria. However, SMEs are right to be confident about the future as there are different finance providers out there, away from the high street banks, which are able to support smaller businesses with their expansion aspirations. Specialist banks, such as Hampshire Trust Bank, play a crucial role in providing finance to SMEs in the markets in which they operate and we urge firms to consider different options when seeking new sources of funding.”

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