Poorest areas of England face squeeze in SME finance

  • Across Great Britain, SME lending by major banks fell by 8% between 2014 and 2018
  • Small businesses in the North West saw the largest reduction in lending of more than 16%, whilst London had the smallest fall in SME lending out of all British regions
  • The most deprived areas in England received £41 billion less in SME finance than the wealthiest areas in 2014-2018, despite having similar populations
  • The local authorities where SME lending decreased the most also had sharper falls in the number of bank branches

Research by iwoca, one of Europe’s largest business lenders, reveals that high street banks have significantly reduced SME lending in the poorest areas of England.

Analysis of deprivation data and postcode lending statistics reveal that SMEs in the 10% most deprived local authorities received £41 billion less funding than those in the least deprived areas over the past five years. The latest available full-year lending data shows that the poorest areas of the country received £90.5 billion in SME lending between 2014 and 2018, whilst small businesses in the wealthiest areas received £131.5 billion – despite both having a total population of 5 million.

Across Great Britain, SME lending fell by 8% from 2014 to 2018 – more than £33 billion, with businesses in the North West seeing the biggest squeeze of any British region with a fall of 16.7% totalling £7 billion. The North West, North East and Yorkshire were in the top four British regions which saw the largest drop in SME lending, while small businesses in London had the lowest drop in funding (3.6%).

  • In the 20 areas which saw the largest reductions in business lending, SME finance fell by an average of 34.8% over these five years
  • The 10% poorest local authorities in England saw SME finance fall by 19% between 2014 and 2018
  • In Blackpool, the most deprived area according to the government’s index of deprivation, lending has fallen by 31.2%. In Wokingham, the least deprived area of the country, lending has fallen by only 4%.
  • Torbay witnessed the sharpest fall of 53.9%, whilst Hackney in London saw the largest rise in SME lending of 22.6%

Bank branch closures

Bank branches are closing in all areas of the country, however analysis shows that local authorities where SME lending decreased the most also saw sharper falls in the number of branches between 2014 and 2018. Of the 20 local authorities in the UK which had the biggest drops in SME lending, eight saw over a quarter of their bank branches close. Conversely, out of the 20 local authorities where SME lending increased the most, only two had more than 25% of their bank branches shut.

iwoca’s contribution

Whilst big banks have reduced their lending to SMEs in Great Britain, iwoca has increased the levels of finance made available to businesses. In the past three years iwoca has made over £1 billion of funding available for small businesses, increasing from £170 million in 2016 to £786 million in 2018.

Christoph Rieche, CEO and cofounder of iwoca said:

‘SMEs are vital for the health of the economy. Our mission is to give business owners the funding they need so that they can do what they love, and by doing so, creating jobs and supporting communities right across the country.

‘It’s therefore concerning that in many parts of the country, major banks aren’t serving small and microbusinesses with the funding required to help them thrive. That’s why at iwoca we’re focused on giving small businesses access to the finance they need to drive our economy forward.’

Rob Bailey, iwoca customer and founder of Swallow Hill Homes said:

‘Traditionally I would have an overdraft set up through my bank but they took it away after the credit crunch. Having instant access to funding that I can just turn to at very short notice is really handy, which is why I use iwoca to help manage my cash flow.

‘The fact that I can just wake up in the morning knowing I have to pay an invoice, request the money and it hits my account instantly is invaluable. I think the UK is a great place to do business and I’m optimistic about my industry. I’m now positive about the economy and I think we’re going to have a few good years.’

Author: Yash Hirani

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