Shortage of credit for SMEs preventing UK from ‘levelling up’

A critical shortage of lending to Britain’s small businesses is preventing the UK from “levelling up”, according to a report published by a group of cross-party MPs today.

The All-Party Parliamentary Group has warned that a lack of trust between banks and businesses has choked the supply of credit to SMEs in the UK.

Theodora Hadjimichael, chief executive of Responsible Finance, said: “Access to finance remains the major block to SME growth in the regions, deprived areas and among demographics under-served by mainstream and so-called challenger banks. And levelling-up will not be delivered solely by building projects in red-wall constituencies.”

Small businesses often rely on credit to fuel growth in the early stages of development.

The acute lack of finance is stopping small businesses from expanding, putting downward pressure on job creation and preventing regional inequalities from narrowing, the report, titled Scale up to level up, said.

The report also found SMEs led by those from BAME backgrounds and women particularly struggle to secure funds. Businesses outside London tend to struggle to secure credit.

In order to tackle the chronic lack of bank lending to SMEs, the report recommended the government scale up funding for regionally based lenders – or community development finance institutions – that channel finance into local businesses.

Danny Kruger MP said: “We need lenders whose interests align with those of the community as a whole…CDFIs are more flexible, don’t have blanket lending policies and can apply real human judgement to the decisions they make about lending.”

The report was based on findings from the group of MPs’ inquiry into fair businesses banking, which took into account evidence from the Treasury and the British Business Bank, among other organisations and government bodies.