Yorkshire SMEs turn their backs on the banks

Banks are quickly falling out of favour with Yorkshire SMEs according to new research, which found that nearly half (47%) of firms in the region are less likely to borrow from a traditional bank than they would have been previously.

The survey commissioned by Growth Lending, identified a number of reasons for this eroded confidence, with 44% saying their trust has waned because of events such as the 2008 banking crisis and banks’ treatment of businesses during the pandemic. A third (33%) of Yorkshire SMEs said they would be unlikely to reach out to a bank because they had been turned down by a traditional lender in the past, while 22% said that borrowing terms from traditional banks are unsustainable for their business. Meanwhile, 33% said they are less likely to consider traditional banks following a positive experience of borrowing from an alternative lender.

Many SMEs in the region are turning towards alternative sources of external funding, with nearly a third (32%) seeking private investment to grow, ahead of the 26% looking to secure bank loans during the coming year. Plus, 21% of Yorkshire businesses are planning to grow through invoice finance.

Yet, despite 43% describing their current need for external investment as “significant”,
the ‘Don’t Bank On It’ report also found a widespread lack of awareness of alternative funding streams amongst Yorkshire SMEs. 11% were unaware of any form of alternative lending and 32% said they were unsure which alternative funding options were available to their business. 21% of SMEs in the region believe there is a lack of education available around alternatives to traditional lending.

Considering that 45% of Yorkshire SMEs have at least £100,000 tied up in late payments on average and almost half (47%) of respondents are unaware of invoice finance as a form of funding, this lack of awareness could be costing them millions in working capital.

Commenting on the findings, Lauren Couch, Managing Director at Growth Lending said:
“Traditional lenders have tightened their lending criteria and are becoming increasingly selective, favouring existing clients and established businesses. It is arguable that these lenders have withdrawn from all but the safest markets in the current climate and with sky-high interest rates and borrowing rates set to dramatically increase, they are becoming a less attractive or unattainable source of funding for many businesses.

“While it is positive to see that more SMEs in the Yorkshire region are considering non-traditional lending streams to protect and grow their businesses, the lack of education around these options is holding many back from getting the support they need. As economic uncertainty continues, this is a key challenge that lenders must overcome to help the SME business community survive and even thrive, during difficult times.”

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