Peer lending and crowdfunding an “increasing source of finance” for UK firms
Peer lending and crowdfunding are becoming an "increasing source of finance" for firms, as non-bank alternatives are giving a growing number of UK firms a helping hand, according to the Bank of England.
In its quarterly report on trends in lending, the central bank reports that credit conditions for businesses are improving, with net lending to UK businesses positive in the three months to May, in contrast to a negative flow in the previous period.
However, the improving conditions failed to reach small and medium-sized companies, which saw a £200m dip in loans.
The BoE reported that conditions had improved "for firms of most sizes over the past quarter, though conditions remained tight for the smallest businesses".
One of the problems for SMEs is that banks are often simply unable to lend the sorts of sums that are most often demanded by small firms.
“For most high street banks it is simply not economic to lend sums of less than £50,000. As a result there needs to be a serious shake up in the approach SME’s take towards securing funding. Whether that means turning to alternative finance providers or spreading the cost of asset purchases over a number of years through asset finance, SMEs need to start thinking about different ways of investing in their businesses and managing their cash flow,” says Mike Francis, head of asset finance at Investec.
Others were less positive.
Reacting to the news, Ian Currie, director of the corporate finance advisors Seneca Partners, said:
It'll take more than one month of positive lending figures to turn round the oil tanker. The high street banks remain deeply wary of lending to small businesses, and the annual trend is still downwards. Ever since the financial crisis, many high street bank managers have turned risk aversion into a mantra. With the knowledge that their neck would be on the line for any loans that go bad, some have even discouraged small businesses from applying.
The survey shows that net bank lending to private non-financial corporations rose by £3.5bn in May after drops in April and March, meaning that the three-month annualised rate of growth was up 1.8 per cent following declines of 2.5 per cent in the first quarter of 2014.
While overall the report does appear positive, analysts have cautioned against getting carried away with the recent improvement.
"May’s marked increase in lending to businesses is a very welcome development and the hope is that this is the start of an improving trend. However, this cannot be taken for granted as there have been false dawns before," said Howard Archer, chief UK economist at IHS Global Insight.
"With the UK sustaining a decent level of economic activity and prospects currently looking pretty bright, business demand for credit seems likely to pick up appreciably over the coming months."
The survey reported that spreads over reference rates on new lending dipped significantly for medium-sized and large businesses in the second quarter of 2014, however spreads were still unchanged for small businesses.
The report comes as the industry watchdog today published a report calling for a full-scale probe into the UK's banking system to consider a raft of possible changes to the small business banking market and the current accounts sector in a bid to enhance consumer and SME choice.