The record year saw some £35.5 billion lent to SMEs by smaller banks last year
Challenger and specialist banks lent more money to small businesses in 2022 than since records began, exceeding lending by the UK’s biggest five banks, research has revealed.
The record year saw some £35.5 billion lent to SMEs by smaller banks last year, as many firms grappled with high costs and weaker consumer spending.
It marked the highest total lending amount since records began in 2012, according to a report from the Government-backed British Business Bank (BBB) which draws on data last month from the Bank of England.
It meant challenger and specialist banks took hold of a 55% share of the market, up from 51% in 2021, and the second year in a row that they exceeded lending from Britain’s major banks.
The UK’s big five banks – Barclays, Lloyds Banking Group, HSBC, NatWest Group and Santander – have traditionally dominated smaller business lending.
But well-established challengers such as TSB and Metro Bank and specialists like Shawbrook Bank and Paragon Bank have taken hold of a growing share of business customers.
This could be because challengers and specialist lenders are finding new opportunities such as lending to sectors most severely impacted by the pandemic, the report suggested.
Some 5.5 million smaller businesses across the UK have battled against skyrocketing energy prices, rising cost inflation, and consumers battling with the cost-of-living crisis.
But fewer small businesses sought external finance last year, in a sign that firms were uncertain about taking on debt at a time of increased economic pressures and rising interest rates, the report said.
A third of SMEs were using finance in the final three months of 2022, down from 44% in 2023, the data showed.
However, the total value of lending grew, suggesting that firms were seeking larger loans to support their business due to inflation.
Gross bank lending to smaller businesses reached £65.1 billion, up more than a 10th from the £57.7 billion total in 2021.
Louis Taylor, chief executive of the British Business Bank, said: “Today’s report finds strong growth from challenger and specialist banks, as well as asset finance provision, as businesses seek alternative finance options.
“Smaller businesses are clearly adapting to a challenging economic climate, with many reducing their use of external finance.
“Looking ahead, there are some grounds for optimism that we may be turning the corner.
“Recent falls in inflation and energy prices mean that more smaller businesses can now begin to look once again to how they might grow rather than merely survive.”
The British Business Bank administered the Government’s Covid loan schemes and Future Fund which dished out more than £80 billion in loans to 1.67 million businesses.
Published: by Radio NewsHub