A contraction of bank lending to SMEs has resulted in an estimated funding gap of nearly £3bn in Wales over the last thirty years, according to new research from business bank Allica Bank.
The analysis of lending to the SME sector from the Ƶ’s six biggest high street banks identifies a gap for the Ƶ as a whole of £65bn - contributing to the lowest business investment rate in the G7.
For Wales’ 104,895 SME businesses the identified £2.92bn gap could otherwise have been directed toward investment, growth and productivity. The research estimates a negative impact of 3.2% on Welsh GDP.
The research also shows that the number of SMEs applying for external finance has fallen markedly from 65% in the late 1980s to just 25% between 2022-24. Likewise, SME loan rejections have risen from between 5% to 10% three decades ago to 40%.
Allica Bank is targeting lending £1bn to established SMEs this year alone.
The business bank is tripling the number of relationship managers it has in the Ƶ this year who can help local businesses find finance.
Allica is also aiming to turn around loan applications within just five days.
Tom Hine, Allica Bank’s relationship manager for Wales, said:“Wales is home to some fantastic businesses and a business community that wants to invest, grow and innovate. All too often, however, business owners struggle to find the finance they need to do so.
“Recent decades have seen many banks focus lending only on businesses with significant assets and property, or shy away from supporting some sectors altogether. Our data reveals that three decades ago only 5-10% of SME loans were rejected – a figure that stands at 40% today. This shows a banking sector failing to keep pace with a changing economy and this is having real knock-on effects for Wales’ economy, and the country as a whole.
“A big contributor to this is the antiquated technology many big banks have, and the lack of real human support they offer established SME businesses in Wales. Relationship managers like myself can help business owners identify opportunities to borrow, can help them make a strong application and can champion.
At Allica we combine that relationship-based approach with smart technology that keeps things moving fast.
I’m excited to be part of the team aiming to close that SME lending gap. The big six banks have undervalued, underfunded and levelled-down the regional economy for too long, we’re aiming to remedy that.”
