Lloyds to Shut Invoice Factoring Program by Year’s End Servicing Under 1% of SMEs
Lloyds Banking Group will close its small-business invoice financing factoring program by year’s end, affecting a service used by under 1% of its SME clients, the FT reported. The move follows similar exits by major banks and reflects profitability challenges as rising wage and tax costs pressure margins.
1. Lloyds to Close Small-Business Invoice Financing by Year End
Lloyds Banking Group has confirmed plans to wind down its small-business-focused invoice financing (factoring) program by December 31. The service, which allowed the bank to purchase unpaid invoices from eligible clients in exchange for immediate cash, will cease operations across the UK. Two sources familiar with the matter told the Financial Times that fewer than 1% of Lloyds’s 1.2 million small-business customers currently use factoring, prompting the bank to reallocate resources toward higher-return segments. Internal projections indicate that maintaining the unit would have required an additional £50 million in capital reserves to meet regulatory liquidity requirements for 2025.
2. Direct Impact on Clients and Eligibility Changes
Industry insiders report that Lloyds tightened revenue and profitability thresholds earlier this year, reducing the pool of qualifying clients by roughly 30%. Nathaniel Southworth, managing director of KAP Toys, explained that the revised criteria imposed by multiple lenders left his £5 million-annual-revenue business unable to access factoring. Southworth noted that traditional lenders now demand at least £10 million in annual turnover and two consecutive years of positive EBITDA, effectively excluding many firms with seasonal or project-based cash flows. Lloyds declined to provide specific usage figures beyond the sub-1% estimate but acknowledged increased customer inquiries regarding alternative funding.
3. Broader Market Shift Toward Embedded Finance Solutions
The closure follows similar withdrawals by other major UK banks and coincides with rising operational costs for small and medium-sized enterprises (SMEs), including a 9.7% increase in the national minimum wage and a 4.5% rise in business tax rates implemented in April. According to a recent PYMNTS Intelligence and Marqeta collaboration, 75% of retailers with under $500 million in annual revenue now consider embedded finance innovations—such as point-of-sale loans and digital credit lines—more critical than other technological upgrades. Among those already using these solutions, 68% report measurable gains in operational efficiency, while 53% highlight improved customer conversion rates and reduced checkout friction.