Small retailers chase new financing to survive high street cull

By Roger Baird on Monday 11 February 2019

Alternative Lending

Major British banks cut lending to small stores by four per cent last year.

Small retailers are under intense pressure to survive on the high street as UK banks cut lending to these firms last year.

Major lenders cut loans to small and medium sized retail businesses by 4 per cent in 2018 to £14.9bn, compared to the year before, according to a report by online business finance supermarket Funding Options.

By contrast, it added that high street banks shifted their focus to larger shopping chains, as loans to larger retailers lifted by 5 per cent to £37.7bn in the year to November.

This change in lending focus comes amid one of the toughest periods on the high street for years with 2,594 stores closing, hitting just over 46,000 jobs, according to the Centre of Retail Research.

Last year saw a host of small stores and large chains fall into administration, including HMV, Toys R Us, Orla Kiely, Poundwolrd, Maplin, House of Fraser and Evans Cycles. Some of these firms were rescued, while others closed their doors for good.

Retailers are facing a combination of pressures as consumers rein in their spending and do more of their shopping online, say retail analysts. As a result, many retailers struggle to pay their quarterly rents and other overheads, such as a rising minimum wage and business rates.

“High streets are becoming gradually hollowed out as more big retailers shift their focus to growing their online sales,” said the Funding Options survey. “Smaller retailers need additional funding to enhance their websites and improve their high street offering in order to compete.”

Smaller retailers are increasing turning towards alternative finance to bridge the gap left by high street banks.

A recent British Business Bank report showed that the use of alternative finance options by businesses, such as asset finance and peer-to-peer lending, jumped by 12 per cent and 51 per cent respectively over the last year.

Funding Options chief executive Conrad Ford said different types of alternative financing could prove “flexible and accommodating” for small firms.

He added: “Many small businesses have characteristics, such as seasonality, that can mean they have different risk profiles. Being a seasonal business can mean inconsistent income, and therefore cashflow, which can make it hard to maintain the regular loan repayments that are needed under a standard bank loan.”

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