New insights suggest SME growth could be unlock by pairing Minimum Requirement for Own Funds and Eligible Liabilities (MREL) reform with more radical changes to UK finance.
These findings come following a recent government meeting with the senior executives of the UK’s major bank businesses.
The Minimum Requirement for Own Funds and Eligible Liabilities (MREL) is a central reform to issues such as low loan approval rates. The MREL increased the requirements for loss-absorbing capital for banks to limit public cost. As a result, when surpassing the £15 billion asset threshold, banks face sharp increases to capital obligations.
Since the Covid-19 pandemic, loan approval rates have fallen to a significant low. Reports have been made of rigid terms or finance businesses being unresponsive, leading to SMEs feeling unsupported financially.
A report from the Department for Business and Trade stated:
“Loan success rates for companies applying for bank finance are low in the UK at less than 50% on average.”
From 2018, this rate has lowered from 67%. Therefore, only a limited number of institutions have benefitted from challenger banks, which are banks best placed to serve the interests of SMEs. The British Bank Business (BBB) has largely been ignored as a body that can be leveraged to support SMEs. Its de-risking schemes, such as the Recovery Loan Scheme, are viewed by many industry professionals to be sufficient in the current UK economy.
At AJL Finance, we provide SME business loans, offering decisions and funds, often within 48 hours. We seek to provide the personal, open and honest relationship that SMEs require in the UK’s current economic climate.
