Small businesses in the UK are turning to
alternative forms of finance due to perceived difficult credit
conditions, a Bank of England report has found.
The latest regional agent report to the Bank’s
Monetary Policy Committee for June suggested smaller companies were
reluctant to seek credit from banks in case the cost of their
current borrowings increased as a result.
The same report suggested large and medium
businesses felt they were still able to borrow from banks if they
According to the agent report, which
summarises the findings of the Bank’s representatives from 12 UK
regions, small businesses are turning to funding options outside of
traditional lending from high street banks such as invoice
financing to raise credit.
The report said: “Small firms generally
perceived credit conditions to be very tight.
“And many small firms were reluctant to
approach banks in case it led to an increase in the cost of
existing borrowings, or reductions in overdraft limits.
“There had been an increase in the use of
asset-based finance for investment.
“And some small firms were slowly making
greater use of different types of financing for working capital,
such as invoice discounting, that were available in place of
A spokesperson for the National Association of
Commercial Finance Brokers (NACFB) said: “The association has
repeatedly called for easier access to funding for SMEs as it seems
clear that funding for larger organisations is far easier than the
vital funding that is required for smaller businesses.”
NACFB also said defining a small business and
recognising the level and kind of funding needed was important.
The spokesperson added: “The feedback that the
association receives directly from small businesses in the UK is
that if we really want to help those at the struggling end of the
SME market we need a fund for businesses with a turnover starting
at £100,000 who are looking to borrow for example £10,000 for new
“This would allow these businesses to grow and
to employ new staff, perhaps even ex public sector workers, and
this how we can make a real difference to the economy.”
“The NACFB is getting the message across to
SMEs that funding opportunities do not end the minute that they are
turned away by their business bank.
The monthly reports have highlighted small
business concerns at a lack of access to traditional credit
previously this year. This is the first report which shows the
businesses owners interviewed are looking to alternatives.
A spokesperson for the government, whose
Project Merlin agreement is designed to increase lending to SMEs
from the UK’s four biggest banks, said they wanted to see a
competitive lending market where various forms of finance are
The Department of Business spokesperson said:
“Small businesses should explore every avenue for getting finance
that is available – the various retail banking services and
alternative sources of finance.”