Traditional lenders could be cutting finance to SMEs in the North based on how the region has performed in the past, according to SME e-lender Everline.

It was responding to research from Funding Option, which found that 55% of businesses in the North have had their overdrafts cut in the last two years, compared to just 25% in London.

Russell Gould, COO of Everline, thinks that mainstream banks are taking an old-fashioned approach to lending.
He told Bridging & Commercial: “The truth is that it’s not commercially viable for most traditional lenders to underwrite small business loans under £150,000 – primarily because of their lengthy and manual approach to underwriting loans.

“Part of this old-fashioned approach to underwriting is possibly why more cuts have been seen in the North, with traditional lenders looking at historical data such as how a region has performed in the past, rather than the real-time individual business data that e-lenders like Everline use to create an up-to-date and fair profile bespoke to each business.”

The research from Funding Option found that traditional lenders have cut £5m of SME overdrafts a day over the last four years, hampering growth in the northern powerhouse.

Conrad Ford, CEO of Funding Options, said: “Reductions in small business overdrafts are cutting off the fuel for the northern powerhouse.

“The ongoing reductions in overdrafts for small businesses is the hidden credit crunch, and while the whole country has been affected, the North has been hit a lot harder than London.

“As the banks have been forced to reduce their exposure to small business lending, they have focused on overdrafts as a risk that can be eliminated with relative ease, and at short notice.

“We’re now approaching the end of the business overdraft as a tool for working capital.”

Despite the government’s northern powerhouse scheme, research from Everline has found that the gap between London businesses and those in the north is set to double over the next 10 years, with the average turnover of SMEs in London already 80% higher than in other regions.

Russell added: “Although small business growth has increased dramatically in the last ten years, it’s clear that more needs to be done to encourage a similar decade of growth and instil confidence in our small business network, especially outside of London.

“Ensuring access to the appropriate finance for all businesses, regardless of location, would be a good first step.”