UK SMEs lack alternative sources of business finance
(4 October 2017 – United Kingdom) The British Business Bank says new research underlines the need for greater choice for the United Kingdom’s (UK) smaller businesses looking for finance to grow.
Its report, The Benefits of Diverse Finance Markets for Smaller Businesses, found that core debt products such as bank loans, overdrafts and credit cards remain the most frequently used by UK based SMEs looking to raise finance, but says a clear trend has emerged of fewer smaller businesses using core products since 2012.
Applications for new debt facilities fell to four percent of smaller businesses in the first half of 2017 (down from 11 percent in 2012) with the fall seen across a range of SMEs, from start-ups to older businesses and those specifically looking to scale-up.
The government-backed bank stated these changes reflect the wider economic environment, and may also be due to a change in preferences, where smaller businesses generally prefer holding positive bank balances and funding growth plans from their own resources. Despite this, at an aggregate level, flows of finance to smaller businesses again grew in 2016.
Notably, after several years of contraction, net flows of bank loans (new loans, excluding overdrafts) were positive with nine consecutive quarters totalling £5.5 billion through to Q4 2016. Asset and asset based finance grew healthily through 2016, with hire purchase, in particular, well above pre-financial crisis levels. Gross flows of lending to business via marketplace lenders reached £1.3 billion in 2016, but they remain relatively small in comparison to sources of debt finance from banks.
The British Business Bank says one feature of SME finance has been the significant increase in flows of equity finance to smaller businesses over the last five years, though 2016 did however see a decline following a very strong 2015. The analysis highlights the European Investment Fund (EIF) has made a significant contribution to UK SME finance markets, committing £2 billion in equity and £385 million in guarantees and securitisation directly into the UK over the period 2011-15. This activity supports scale-up businesses and the bank says it will monitor closely market developments in this area.
Keith Morgan, CEO of the British Business Bank said, “The diverse finance needs of our smaller business community are not always reflected in either the provision or take-up of available finance options, with pronounced differences seen across regions both in the supply and awareness of different finance options.
“The report sets out the benefits and importance of offering our smaller businesses a diverse finance market to support their growth and contribution to the wider economy. It again underlines the importance of ensuring smaller businesses are aware of and can access the right kind of finance they need to grow and succeed.”
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