Small business lending has a reputation for being notoriously risky. In the wake of the 2008 financial crisis, regulations that hit the world’s banks aimed to lessen the instances of risky lending, forcing many financial institutions to all but abandon small business lending.
But as the global economy recovers and mainstream banks look to regain small business lending business from their alternative finance rivals, some traditional players are proving that SME financing doesn’t have to be a sure loss.
According to reports published Monday (July 13), Interim Partners has released a new survey finding that SME lending in the U.K. is expected to give banks their highest margin growth out of any other loan product in the coming year. A survey of interim executives from the banking industry found that more than one-third predict SME loans will see the fastest-growing margins in the next 12 months.
Thirty-five percent of those surveyed chose SMEs as most likely to see the highest margin growth, far more than other types of loans. Just 19 percent said unsecured personal lending would see the highest growth rate, for example, while only 8 percent chose lending to larger businesses.
“Clearly banking executives expect that margins within SME lending will be best protected,” said Interim Partners Partner Angela Hickmore. “We are certainly seeing more interest in this area from new challenger banks that are freer than the bigger banks to cherry-pick the more attractive parts of the market.”
She added that if interest rates rise, lending margins may rise even further, while researchers also noted that rising SME loan demand could also boost numbers.
Interim Partners also found interim executives to believe that lending is now the most important strategy to boosting the U.K. economy. More than half agreed, finding lending to be more crucial than for banks to build up their balance sheets or to invest more in compliance measures.
According to Hickmore, the survey reveals a sentiment of economic recovery. “Banks have worked hard to rebuild their balance sheets,” she said. “But senior executives in this market feel it is now time for a shift in emphasis to loosen the purse strings a bit more and provide the increased finance to sustain the recovery.”
The research did find one negative, however. According to the survey, only 3 percent of interim executives say investment banks are likely to act as the largest provider of new jobs in the country, a finding Hickmore described as “quite surprising.”
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