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UK Banks Boost SME Lending, But SMEs Don’t Want It

The U.K. is in the middle of major overhauls aimed at strengthening small- and medium-sized businesses’ ability to compete in the markets. Legislation to boost competition in the banking sector and increase SME lending from big banks and alternative lenders, as well as new regulations that crack down on late payments to SME suppliers.

But whether these efforts are working is up for debate. Just days after a report by accountancy firm KPMG found that the influx of challenger banks in the U.K. banking market is failing at offering better services to SMEs, new research revealed that federal efforts to boost SME lending have led to an uptick in big banks financing small businesses. On the same day, however, separate findings revealed that about half of U.K. SMEs don’t want big bank loans at all.

The Bank of England reported Thursday (May 28) that its government-backed Funding for Lending scheme saw a nearly $975 million increase in 2015’s first quarter. The scheme, launched in 2012, was altered in 2014 to focus its lending efforts on SMEs. It involves the FLS providing money at a cheap rate to big banks so they can increase their financing of small businesses; according to reports, Lloyds Banking Group saw the highest uptick in SME lending.

While the report appears to be positive for the small business community, separate findings seem to contradict the BoE’s report. The SME Finance Monitor from business intelligence agency BDRC Continental said Thursday that nearly half of SMEs in the U.K. refuse to borrow from the banks.

The research found that 48 percent of SMEs are considered “permanent non-borrowers,” and 70 percent of the 5,000 SMEs surveyed said they are currently focused on either paying off current debts or remaining debt-free. Twenty-seven percent said they would not, under any circumstance, borrow any money in the future.

While the findings seem to contradict the FLS’s latest figures, reports did note that of the remaining 52 percent of SMEs that the SME Finance Monitor found to be potential new borrowers, they are taking advantage of the smaller competition for bank lending. The portion of these SMEs willing to borrow money that has actually done so has risen to 35 percent, up from just 18 percent one year ago.



The pressure on banks to modernize their payments capabilities to support initiatives such as ISO 20022 and instant/real time payments has been exacerbated by the emergence of COVID-19 and the compelling need to quickly scale operations due to the rapid growth of contactless payments, and subsequent increase in digitization. Given this new normal, the need for agility and optimization across the payments processing value chain is imperative.

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