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How the Budget could shake up SME lending

July 9, 2015 | Jonathan Pryer

Corporation tax and the new National Living Wage were two of the main focus points for UK businesses in the July Budget which the Chancellor, George Osborne announced yesterday. However, despite the rate of corporation tax falling to 19pc in 2017 and 18pc in 2020, it will have little impact on SMEs in the UK as this will only generate a marginal gain. What will impact SMEs is the National Living Wage. As of April 2016, the Government is introducing a new minimum wage of £7.20, which will rise to £9 by 2020.

SMEs account for 99.9% of private sector companies and provide 60% of private sector jobs in the UK. Although some new measures have been introduced by the Government to reduce the impact on the most vulnerable businesses, SMEs employing a staff on the minimum wage are likely to feel the effects the most. This has left many smaller firms unimpressed, with many fearing they may need to turn to loans to support their businesses. Yet lending to SMEs is still perceived by some banks as too high a risk.

According to Bank of England Trends in Lending report, lending is expected to increase for all but small businesses through 2015. As SME lending continues to fall, they are increasingly turning to alternate forms of finance. The number using only bank loans, overdrafts or credit cards has declined by almost 10pc to 20pc, according to the most recent SME Finance Monitor. By way of contrast, peer-to-peer business lending from providers increased in the first half of 2014, reaching a total of £300m.

At the moment it is perhaps too early to see the true effects the Budget will have on SMEs and how this will change the lending landscape. Watch this space.

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