Small and medium-sized enterprises (SMEs) in Britain are continuing to repay debt at levels more than 20 times higher than before the pandemic, according to industry data.
The Department for Business and Trade says this illustrates the lack of “competitive downward pressure” on loan prices, prompting it to open a review into the supply of SME debt finance.
Recent figures from UK Finance, which represents leading high street banks, revealed that their net lending to smaller businesses fell by £7 billion last year. Although repayment rates have slowed from the peak in 2022 and 2023, when companies were settling Covid-era loans, the current trend still far exceeds 2019 levels. The government and the British Business Bank (BBB) fear that lingering risk aversion is stifling much-needed business expansion and contributing to Britain’s ongoing productivity issues.
Data from the BBB indicated that only 43 per cent of small businesses accessed external finance in the second quarter of last year, down from 50 per cent in late 2023. Concerned by these figures, the government has called for evidence on barriers to borrowing for underserved groups, such as entrepreneurs with disabilities or those from ethnic minorities. The review will focus solely on debt and will not assess equity finance availability.
Officials note that challenger banks, which must raise wholesale funds at higher costs than the major banks, are left with little room to reduce interest rates for SMEs. Larger lenders, by contrast, benefit from having sizeable deposit bases, giving them a competitive advantage. The Department for Business and Trade hopes the review will pinpoint ways to spur more affordable lending options.
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