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The banking turmoil could strangle small businesses.

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Turmoil in banking could curb credit provision for small and medium companies, the boss of Funding Circle, the lending platform. Jacobs said she expected Funding Circle’s wholesale funding to tilt more towards asset managers over the next 12 months «versus banks given some of the disruptions» but that the platform was in a strong position due to its diversity of funders. «It’s not yet clear if there is the broader market sentiment around lending,» Jacobs said. Funding Circle, which has arranged about £15 billion in credit to 135,000 businesses since 2010, has issued research which showed that economic conditions caused small and medium companies to pause or cancel investment decisions last year, adding to the UK’s productivity concerns.

Jacobs noted research by the Federation of Small Businesses showed that two-thirds of SMEs planned to make some form of investment in their business by 2024, suggesting that any curbs on intentions to invest were linked to short-term economic issues. Funding Circle’s research, conducted by Oxford Economics, a consultancy, found that cash deposits remained elevated in small and medium businesses, with many still stockpiling reserves built up during the pandemic. Jacobs said a significant proportion of companies took emergency pandemic funding «almost as an insurance policy, but they’re sitting on it and not feeling the confidence to invest». She said it was important to encourage such companies to invest since small businesses have a «disproportionate aggregate effect on the economy».

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  1. Brandon20 March 2023 at 13:55

    Of course this will affect small businesses. They will be the MOST affected. Just think of all the small businesses that can't retrieve much needed funds from failing banks. Such businesses can go bankrupt within a few months if they don't have cash flow.

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