SME lending: banks risk losing ground permanently

Posted at November 5, 2013 | Categories : News

In its Autumn forecast for UK financial services, Ernst & Young’s (E&Y) ITEM Club says it expects demand for SME credit to remain weak, but is hopeful that the economic recovery will end firms’ “singular focus” on reducing debts and conserving cash.

Looking further ahead, the report states: “It is harder to predict how the supply of SME credit will evolve.

“New high-street banks may have an impact at the smaller end of the SME spectrum, but SMEs are increasingly turning to alternative sources, such as peer-to-peer lending and crowdfunding for finance.

“Medium-sized firms, like their large corporate counterparts, continue to have more funding options.

“Banks unwilling or unable to increase their own lending are partnering with institutional investors to offer their clients alternative credit sources.”

E&Y UK banking & capital markets sector leader, Omar Ali, sums up: “Despite growing economic confidence, most UK banks will remain constrained in their ability to increase net lending for the foreseeable future.

“As alternative funding solutions establish themselves in the UK, banks risk losing ground permanently.”