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Rising Cost of SME Bank Loans

According to new research, bank loans have become more expensive for SMEs in recent months despite the government’s ongoing efforts to reduce the cost. The flagship Funding for Lending Scheme has failed to make any breakthroughs and has been shown to be benefiting larger rather than smaller businesses. With interest rates increasing for small businesses, it’s more important than ever to know all the options when it comes to small business lending.

According to findings from Syscap, interest rates on new bank loans under £1million rose from an average of 3.76% in Q2 to 3.85% in Q3. This in itself suggests that Funding for Lending, launched at the start of August, has failed to impact significantly on the lending cost for small businesses. On the other hand, however, the interest rates for bank loans over £20 million did decrease, falling from 2.48% to 2.34% over the same period.

So, while the scheme was initially aimed at reducing the lending cost for small businesses, it is in fact larger businesses who have benefited. Small businesses are now contending with a rise in interest rates, makes funding less accessible once more. No government scheme has had a substantial impact on the cost of SME lending, despite ongoing efforts. Whether this is to do with the fragile economy, outside influences or even just lack of awareness is uncertain, but it is clear that a different approach is needed.

Alternative lenders are one avenue that the government could further promote. Solutions such as invoice discounting and factoring are both accessible options, available in various forms for businesses from start ups to medium sized companies with million pound turnovers. If your business is struggling to cope with the rising cost of SME bank lending, then it’s always worth exploring your alternative options.

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