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New Data Muddles The Picture Of UK SME Finance

U.K. lawmakers are pressing mainstream banks to increase their small business lending activity, but the sentiment among the SME community is reported to be one of disdain — small business owners don’t want financing from the big banks.

When it comes to examining the data, however, the picture is less clear. The Bank of England announced last month that big bank lending to small businesses increased by nearly $975 million in 2015’s first quarter. The same day the BoE’s report was released, however, business intelligence agency BDRC Continental said that nearly half of U.K. SMEs refuse to borrow from traditional banks. The findings coincided with earlier reports by KPMG that the rise in challenger banks across the nation is failing to address the funding needs of SMEs.

The latest research appears to make the current state of business lending in the U.K. even less clear. Reports this week by the British Bankers’ Association found that commercial lending to banks saw the year’s highest uptick in March, while lending increased still in April. The BBA reported a net $2.5 billion increase in lending to nonfinancial businesses in March alone.

The BBA specified that this upward trend did not leave out SMEs, citing the BoE’s latest statistics. According to reports, the BBA’s newest figures suggest that the U.K. banking industry has “turned a corner” to promote business lending. According to Blue Horseshoe Treasury consultant director Will Banks in a recent interview with Financial Director, the government “has recognized the constraints on SME lending and encouraged a fresh attitude in the banking sector as a whole and of new entrants into the market.”

But BDRC Continental’s research — finding nearly half of U.K. SMEs to be classified as “permanent non-borrowers” — challenges Banks’ remarks. The study did note, however, that the remaining half of those surveyed could be considered potential new borrowers, though it did not indicate whether those SME owners would first approach a traditional bank or an alternative lender to find financing for their businesses.

The flurry of research and data on U.K. small business banking highlights just how complex the matter is for policymakers who have been championing SMEs’ access to working capital through new legislative efforts. While some experts argue that banks need to increase their lending to small businesses, others contest that SMEs’ lack of big bank financing suggests they largely have their working capital needs met already.

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