Lloyds Banking Group is preparing to shut its invoice factoring service for small businesses, marking the latest retreat by a major UK lender from a form of finance widely used by cash-strapped SMEs.
As reported in the FT, the decision by Lloyds to stop helping small business improve their cash flow, follows similar moves elsewhere in the sector. NatWest and Barclays exited their factoring operations several years ago, while HSBC has tightened eligibility, limiting access to firms with higher annual turnover.
The timing is particularly sensitive for small businesses, which are facing higher wage bills after minimum wage rises, increased energy costs and a tougher tax environment. Craig Beaumont, executive director at the Federation of Small Businesses, said that as interest rates ease, banks should be doing more to help entrepreneurs access working capital rather than withdrawing support.
Why invoice financing is important for small businesses?
Invoice financing, which involves a bank buying unpaid invoices at a discount to provide businesses with immediate cash, is expected to close by the end of the year, according to people familiar with the decision. The move comes as the UK’s biggest banks refocus resources on larger, more profitable corporate clients while smaller firms grapple with rising costs.
Invoice financing has long been a lifeline for SMEs seeking to smooth cash flow amid late payments from customers. But the economics have proved challenging for lenders. Factoring tends to attract smaller companies that generate thinner margins, while hopes of cross-selling higher-value banking products have often failed to materialise.
Business owners say stricter lending criteria have already made traditional bank finance harder to obtain. Many report being excluded because revenues and profits are deemed too volatile, despite the realities of running a small enterprise.
Lloyds bank declined to comment publicly, but a person close to the bank said the factoring unit was modest in size and used by fewer than 1 per cent of its SME customers. The bank said it would continue to offer alternative funding options and remains committed to growing its wider SME lending business.
For many small firms, however, the closure underscores a shrinking pool of mainstream finance just as cash-flow pressures intensify.
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