Photo: DANIEL SORABJI/AFP/Getty Images

UK bank lending to small and medium sized retail businesses has fallen by 4 percent in the last year, to £14.9 billion, from £15.6 billion the year before, shows new research.

Banks are not cutting off lending to the sector overall, but seem to be shifting away from smaller to larger retailers. Lending to large retailers has risen by 5 percent over the last year, to £37.7 billion in November 2018 from £36 billion the year before, as per Bank of England data.

“Many small businesses have characteristics, such as seasonality, that can mean they have different risk profiles. Being a seasonal business can mean inconsistent income, and therefore cashflow, which can make it hard to maintain the regular loan repayments that are needed under a standard bank loan,” explained Conrad Ford, chief executive of Funding Options, an online business finance marketplace.

The research from Funding Options reveals that more small businesses are turning to alternative finance providers to combat the funding gap. A recent report by the British Business Bank showed that the use of alternative finance options by businesses, such as asset finance and peer-to-peer lending, have increased by 12 percent and 51 percent respectively in the last year.

“There are plenty of alternative financing options available beyond lending that can support a business’ growth and investment. These options are often flexible and accommodating,” added Ford.