Finance · 30 August 2017

Small business owners lose trust in lenders as bank borrowing slows

Minature houses resting on pound coin stacks concept for property ladder, mortgage and real estate investment
Younger entrepreneurs were most likely to trust bank lenders

Just 15 per cent of small UK business owners fully trust traditional bank lenders, according to new findings, as fresh Bank of England figures show bank borrowing at its slowest for two years.

As part of a nationwide study of over 500 small business owners, by Hitachi Capital Invoice Finance (HCIF), over two-thirds said they sought out external finance in the last year, despite the trust deficit.

The biggest factor causing distrust among founders was the reputation of the bank, cited by over a third of respondents. Meanwhile, over a quarter said past personal experiences were the reason, while a quarter were deterred from accessing bank finance for security worries.

A closer look at the findings revealed some curious demographic differences in the perceptions of traditional lenders.

In Northern Ireland and the North East of England, not a single respondent said they fully trusted high street banks, while 28.46 per cent that did in London far exceeded the 15.54 per cent UK average.

The age of the company was also a factor. Some 28.3 per cent of new startup founders said the completely trusted traditional lenders to have their best interests at heart.

Commenting on the findings, Andy Dodd, HCIF managing director, said the cautious borrowing outlook would eventually restrict growth for founders.

“There appears to be an ongoing negative perception of more common lenders, despite them using this option to keep their businesses funded. This shows a clear discrepancy between [small business owners] wanting to borrow from these types of lenders and them needing to.”

The research also collected the biggest business concerns for the year ahead.

  1. Turnover (38 per cent)
  2. Brexit (28 per cent)
  3. Securing new customers (27 per cent)
  4. Market competition (24 per cent)
  5. Cash flow (21 per cent)

“More than twenty percent also noted that maintaining their cash flow is a top concern for them for the year ahead, and indicates this is something they are currently struggling to manage,” Dodd added.

“It is important for business owners of any kind to be aware of the funding options available to them and what they are eligible for, as there are a number of options available to help prioritise overdue payments and maintain financial resource, particularly outside traditional lenders.”

A sceptical approach to borrowing among small business owners was reinforced by new findings from the Bank of England which demonstrated the continued decline in lending to smaller firms.

A general increase in bank borrowing in the 12 months to August 2017 has predominantly been from large businesses – small firms increased borrowing by just 0.7 per cent, the slowest rate for almost two years.

Mike Cherry, national chairman of the Federation of Small Businesses (FSB), told The Telegraph that appetite among founders for bank finance was a result of “unprecedented uncertainty, anaemic domestic growth and inflationary pressure” that had stunted consumer spending power.

He added: “Investment intentions are not where they should be and firms will only seek growth finance again when they have a clearer sense of what the future holds.”

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ABOUT THE EXPERT

Simon Caldwell is a reporter for Business Advice. He has a BA in politics and communications from the University of Liverpool, and previously worked as a content editor in the ecommerce industry.

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