Challenger and specialist banks surpassed traditional banking institutions in providing loans to small businesses in 2022, accounting for a remarkable £35.5 billion.
According to data from the British Business Bank, total bank lending to smaller enterprises reached £65.1 billion last year, with 55% of that sum originating from challenger and specialist banks. This figure reflects a 12.8% increase compared to 2021. However, net lending saw a decline of £8.5 billion, largely attributed to the repayment of loans issued during the Covid pandemic.
The report also highlighted that the asset finance sector for smaller businesses achieved a historic milestone, with new business volume climbing 11% in 2022 to £22.1 billion, driven by easing supply chain disruptions and rising asset prices.
Interestingly, there was a significant decrease in the demand for external financing; in the third quarter of 2022, only 33% of smaller businesses sought external financial resources, down from 44% the previous year. Despite this trend, gross lending increased as businesses needing finance opted for larger loans to navigate inflationary pressures.
Survey results indicated a sharp decline in loan approval rates, dropping from 80% to 64% year-on-year.
Additionally, net zero-related investment deals outperformed the broader equity market, constituting 12% of all equity transactions for smaller businesses, an increase from just 5% in 2018. The investment value of net zero deals surged by 184% over the past year, reaching an unprecedented £1.7 billion.
Louis Taylor, CEO of British Business Bank, commented on the findings: “This report reflects significant growth in the contributions from challenger and specialist banks along with asset finance, indicating a shift towards alternative finance options. There are also encouraging trends in the net-zero investment sector, as equity finance markets respond to the increasing demand for green innovations.”