Access to finance trends An international comparison | EEF

Access to finance trends: An international comparison

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OECD reports usually provide a good opportunity to check how the UK stacks up against its main international competitors in a range of economic indicators. This time we’ll be looking at access to finance for SMEs.


What do we know about the UK?

We know that lending to SMEs in the UK has been – to put it mildly – sluggish since the financial crisis. In fact, net lending to SMEs only retuned to positive territory in late 2015. Undoubtedly a positive development but one that serves to show that we have a long way to go before credit conditions for UK SMEs start to normalise.




For stats on the current access to finance landscape for SMEs check out our blog here.


Is this just a UK problem?

No. The nature of the financial crisis meant that overleveraged finance providers across developed economies looked to limit their exposure by cutting down credit. A change in their risk appetite meant that SMEs – generally presenting higher risk and lower profit – were the first ones to go.




While the rest of the G7 countries[1] have all seen credit conditions for SMEs tighten considerably, the downturn in net lending in the UK has been deeper and longer than its main international competitors. The UK shares top spot with the US for the deepest trough, while net lending has been negative for every year between 2009 and 2014.



What’s behind this?

We’ve talked extensively about the role of subdued competition in the financial sector and underdeveloped equity markets as reasons for sub-optimal outcomes for UK SMEs. Two graphs from the OECD seem particularly striking:


    1. Rejection rates for SME loans:



While not as rich a dataset, this graph clearly shows that despite some substantial improvements in 2014, rejection rates for UK SMEs remain comparably high. Only Switzerland has seen higher rejection rates between 2010 and 2014.


    2. Government loan guarantees for SMEs:




The UK government has taken a range of measures to address the lack of funding for SMEs, from setting up the British Business Bank to establishing schemes like Funding for Lending and the Enterprise Finance Guarantee. It’s unclear which guarantees qualify as government guarantees in the context of this data, with the figure likely to underestimate the UK government’s initiatives in this space. Nevertheless, the above graph would suggest that it could perhaps do more in terms of scale, with government guarantees to SMEs a meagre 0.002% of UK GDP.


Where does this leave us?

Credit conditions for SMEs have improved since late 2015. However, a couple of months of positive lending cannot wipe out the issues that have weighed on net lending for the best part of the last decade. And the UK’s international comparison is not favourable either. For this reason we’ll be awaiting the verdict from the Competition and Markets Authority’s investigation into retail banking with heightened anticipation.


[1] No data for Germany


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