New research has revealed banks have lent £5 billion less to West Midlands businesses over the last three decades.

New research from business bank Allica Bank shows a funding gap of £5.66 billion for the West Midlands region, worked out by comparing the current level of SME lending to historic lending trends and comparable global economies.

The research highlights how the Big Six high-street banks have pulled back from SME lending in recent decades leading to a lending gap for the UK as a whole of £65 billion. It has left the UK with the lowest business investment rate in the G7.

For the West Midlands’ nearly 215,175 SME businesses, that £5.66 billion is vital cash that could otherwise be directed toward investment, growth and productivity at a time when the UK is crying out for investment.

The report calculated that, as a result of banks pulling back from SME lending, a national gap of approximately £65 billion in the stock of SME credit has emerged.

The research also highlights how, in response to a tougher lending environment, the percentage of SMEs applying for external finance has fallen markedly from 65% in the late 1980s to just 25% between 2022-24. Likewise, SME loan rejections have risen from between 5-10% three decades ago to 40% today.

The lack of SME lending is sucking £5.66 billion of productive credit out of the West Midlands economy – equivalent to around 2.9% of the region’s GDP.

Allica Bank is calling for greater support for regional businesses and is aiming to begin closing the lending gap with a target to lend £1 billion to established SMEs this year alone.

"The West Midlands is home to some fantastic businesses and a business community that wants to invest, grow and innovate. All too often, however, business owners struggle to find the finance they need to do so," said Eugene Vichare, Allica Bank’s Relationship Manager for the West Midlands.

"Recent decades have seen many banks focus lending only on businesses with significant assets and property, or shy away from supporting some sectors altogether. Our data reveals that three decades ago only 5-10% of SME loans were rejected – a figure that stands at 40% today. This shows a banking sector failing to keep pace with a changing economy and this is having real knock-on effects for the West Midlands economy, and the country as a whole.

"The Big Six banks have undervalued, underfunded and levelled-down the regional economy for too long, we’re aiming to remedy that."