Lending to small businesses (SMBs) among top U.K. banks failed to grow last year, according to new data from the British Business Bank, which found evidence SMBs are turning to other sources of financing.
“There is evidence that small businesses are exercising more choice,” said Keith Morgan, British Business Bank chief executive, in an interview with The Financial Times. “They are shopping around more, and they are shopping around more outside the big four. They are using the internet more to shop around.”
A survey found fewer small businesses applying for loans at big banks, as well as an increase in the number of SMBs that fear they would be rejected if they were to apply for a bank loan. Bank lending to small firms flattened last year, but asset-based finance rose 12 percent, and alternative lending rose 51 percent.
Just 1.7 percent of the U.K.’s 5.7 million SMBs applied for a bank loan or an overdraft in 2017, the report found. That marks the fifth year in a row that big bank lending to small companies has dropped.
“The fact that less than 2 percent of U.K. small firms sought new loans over the last couple of years is a real concern,” said Federation of Small Businesses Chairman Mike Cherry.
The report also found 15 percent of survey respondents expect to downsize, close or sell their businesses this year. Further, the percentage of small businesses that feel confident their loan application would be approved also dropped.
Most small firms that expect to be affected by Brexit said it would cause them to invest and recruit less, though just 4 percent of SMBs overall said Brexit would affect their investment plans.
The British Business Bank’s survey was released the same week separate data from Mercator Advisory Group found use of alternative lending among small businesses in the U.S. hit 27 percent in 2017, with analysts finding millennial small business owners more likely than older peers to use an alternative lender.