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Message behind fall in bank SME lending

Despite efforts at stimulation, new Bank of England figures show that bank SME lending continues to fall. The decline underlines just how important non-bank finance has become.

According to the Bank of England, bank SME lending dropped by 3% to £5.2 billion for the year to April. So, what should be made of another fall? That traditional lenders remain cautious about providing small business funding? That SMEs are facing a major funding gap? That the engine behind economic growth is in danger of being starved of fuel?

Certainly, the news suggests that traditional lenders remain cautious about SME funding, but the discussion of an SME funding gap may be overegging the pudding. Why? Because of the rise and rise of non-bank finance. This sector has well and truly entered the mainstream and the latest bank SME lending figures illustrate the pivotal place that services such as invoice finance, peer-to-peer lending and crowdsourcing have in the new SME funding landscape.

The non-bank finance sector continues to grow – Crowdcube has just launched a new mini bond option pioneered by the likes of John Lewis and Hotel Chocolat – and alternative finance is increasingly being listed an essential source of finance for business start-ups seeking start-up funding.

As for SME growth, new research from BSI, the business standards company, shows that the majority of companies in this sector are confident about their financial prospects over the next 12 months. Nurturing this confidence is vital if it is to be turned into real growth, and in financial terms, the message is that non-bank finance has a key role to play.

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