By Daniel Hunter

British small and medium-sized businesses (SMEs) face a postcode lottery when seeking new funding to drive growth, new research into business lending reveals.

New analysis of bank charge data by Funding Options has found that while the so-called ‘Big Five’ banks — HSBC, Barclays, RBS, Santander and Lloyds — have slightly increased their secured lending activity between 2011 and 2012, SMEs’ access to other forms of lending depend heavily on where they are based.

In addition to closer proximity to equity and bond markets, businesses in the south east can access a deeper pool of niche lending products, and a far wider breadth of specialist providers are also available closer to the financial hub of the City of London.

Companies in the north, however, are finding they cannot access the same breadth of providers, while Scotland’s dependence on the big five banks has increased markedly since 2011 due to an acute retrenchment by overseas banks.

“Britain is a divided nation when it comes to business lending, with companies in the south enjoying access to opportunities not available to those further north," Conrad Ford, managing director of Funding Options, said.

“Contrary to popular belief, the big five British banks are holding their own in lending to small businesses while the much-hyped new forms of lending such as crowdfunding represent less than a tenth of 1% of the lending market.

“What we’re hearing from lenders, however, is that the biggest challenge facing small businesses is still accessing the advice and support needed to put together a strong application.

“Businesses need to address this as a matter of urgency if they are to stand any chance of securing any of the forms of lending that — contrary to reports — clearly are still available.”

Funding Options used data from Red Flag Alert to study the bank charges that underpin secured lending. It found that firms in London and the south east are more than a third more likely to access finance from niche providers.

There was little change in the lending activity of the so-called ‘Big Five’ banks, with secured lending rising very slightly between 2011 and 2012 and their share of overall activity remaining stable at around 53% of the market.

Overseas banks with operations in the UK showed a marked shift as many retrenched to their home markets, with lending activity falling 15% year-on-year, and their share of new lending dropping by one percentage point. This was particularly pronounced in Scotland, where the fall in activity was more than 30%.

Asset finance and invoice finance product specialists have grown their activity by 2% between 2011 and 2012, although this positive impact will be wiped out in 2013 by the recent decision by leading asset finance provider ING to exit the market.

Activity of the UK challenger banks has grown quickly — at 25% - but market share remains low at just 3%.

Crowdfunding and other peer-to-peer lending appears to be growing fast, but still accounts for less than 0.1% of secured business lending activity.

Funding Options helps small businesses to access finance by guiding them through the process of applying for funding and giving feedback as to where applications can be improved.

It then uses the improved applications to source the best finance deals available from a range of banks, asset-based lenders and other forms of funding.

“The subject of business lending is often an emotive one based on anecdote, so it is valuable to use hard data to dispel some of the myths that have grown up around it," Clive Lewis, head of enterprise for the Institute of Chartered Accountants in England and Wales (ICAEW), added.

“Businesses need to do the same, ignoring rumours and taking up-to-date professional advice, and consider a number of different sources of funding to make sure they are getting the best deal.

“Most of all, businesses need to take the time to get their funding application right first time and avoid damaging their future chances by presenting a poor case, or approaching inappropriate providers.”

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