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EU Investment Fund Continues Withdrawal From UK SMB Funding

Non-financial business lending in the U.K. has dipped significantly, according to new data outlined by Business Matters, with European funds also pulling back from the market.

According to news reports on Friday (Aug. 25), bank lending to non-financial businesses dropped by $900 million in July as the European Investment Fund (EIF) and the European Investment Bank (EIB) also withhold financing to U.K. borrowers.

“These figures confirm that small business borrowing is down, corresponding to lower investment intentions and confidence levels,” reflected Mike Cherry, the U.K.’s national chairman of the Federation of Small Businesses (FSB).

According to Cherry, only one in seven small businesses (SMBs) are currently seeking external financing. Overall demand for business lending among SMBs has dropped in the last year, he added, noting that this isn’t due to a switch to alternative lenders but instead a reflection of decline in demand.

“These trends add to a convergence of factors that could threaten small business finance, investment and growth ambitions in the medium term,” Cherry continued. “Reports that the EIF and EIB may already be starting to withdraw support in the U.K. have raised the alarm, while the Funding for Lending scheme ends in January. This makes the government’s extra commitment of resources for the British Business Bank and the National Investment Fund even more important, and we look forward to feeding in to the Treasury’s Patient Capital Review.”

In May, reports surfaced that the European Investment Fund had already begun to stop lending to U.K.-based FinTech venture capitalists as a result of Brexit, with sources saying the Fund had stopped lending to anyone who applied for funding after the U.K.’s Brexit vote. Now, reports suggest that the EIF’s pullback has continued.

“A botched withdrawal from the EIF and EIB would turn a currently mixed outlook into a decidedly bleak one,” FSB’s Cherry continued. “We need to see small firms confident to apply for finance for growth, with the government clearly mapping out what will eventually replace the half a billion pounds of EIF support received in recent years.”

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