British small businesses are being approved for bank loans at less than half the rate seen before the 2008 financial crisis, according to a former economic adviser to US President Donald Trump, who blamed post-crisis banking regulations for restricting access to finance.
Tyler Goodspeed, who chaired the White House Council of Economic Advisers from 2020 to 2021 and is now chief economist at Exxon Mobil, argued that tighter capital requirements imposed on banks after the financial crisis have played a major role in holding back Britain’s economic recovery.
In a paper published by the Institute of Economic Affairs, Goodspeed said the slow recovery could not be explained solely by the severity of the recession.
“History shows deep recessions are usually followed by strong rebounds,” he said, arguing that regulatory decisions had made it harder for British banks to lend to businesses.
The figures highlight the difficulties faced by small firms seeking funding for expansion. Lending to smaller companies in the United States had returned to pre-crisis levels by 2013, while lending to UK businesses remains about 15% below 2008 levels, according to Goodspeed.
He said British banks had increasingly focused on lower-risk lending, including lending to governments, leaving smaller and younger businesses struggling to secure finance.
The problem is particularly serious for technology companies and other firms whose main assets are intangible. Such businesses often have limited credit histories and few physical assets to offer as collateral, making traditional bank loans harder to obtain.
UK businesses are also more dependent on banks than their US counterparts, which have greater access to private credit, venture capital, private equity and deeper financial markets.
Goodspeed said approval rates for new bank loan applications by small and medium-sized British businesses had stood at around 80% to 90% before the financial crisis. By 2024, fewer than half of applications were being approved, he said.
The decline in lending has increased pressure on the Government and financial regulators to improve access to finance for smaller companies. Ministers have held discussions with major bank executives and launched reviews into the supply of SME debt finance.
Some post-crisis rules are now being eased. The Bank of England has relaxed certain restrictions on bankers’ bonuses and indicated that capital requirements could be reduced. The Government has also backed changes to ring-fencing rules that separate retail banking from riskier investment operations.
The key question for small businesses is whether the regulatory changes will lead to more lending. For companies seeking funds to expand a shop, hire staff or develop a new technology product, access to bank finance remains a major challenge.
