Are SMEs borrowing or not?

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By: Neil Edwards on 18th September 2016, 3 minute read

The latest annual figures from the National Association of Corporate Finance Brokers (NACFB) present a rosy, but not altogether consistent picture.

On the face of it they show that, at least pre-Brexit, the UK’s SME community was in the market for raising finance. Members of the NACFB report a rise of almost 30% in total lending from July 2015 to June 2016, the £20.7billion figure representing the seventh consecutive annual increase.

Boom sectors during this 12-month period were commercial mortgages (up 55%) and development finance (up 75%), but invoice finance also rose a commendable 22.8% and leasing grew by over 10%. The laggard in the NACFB space was Alternative Finance which showed a drop of over 14%, from £848m to £725m.

And yet we don’t have to look too far to see a very different outlook elsewhere.

  • According to BDRC SME Finance Monitor (2015), 82% of SMEs were “happy non-borrowers”, up from 72% in 2012.
  • Bank of England data shows that gross bank lending to SMEs has shrunk every year, albeit the pace of reduction has slowed.

So at a time when interest rates are the lowest they’ve ever been, we might conclude that:

  1. The appetite of SMEs to borrow for anything other than property remains very low
  2. The non-property borrowing that does happen is heavily weighted towards working capital (oxygen) rather than strategic growth (food)
  3. Brokers are involved in an increasing slice of the pie
  4. AltFi is no longer the 'darling' of the financial marketplace

But is it as straightforward as that? Maybe the AltFi honeymoon is over and traditional products and providers (e.g. the banks, invoice financiers and lessors) are re-establishing their presence.

There is some corroboration of this trend in Altfi Data (notably weighted towards marketplace lending rather than the broader church alternative finance has become), which shows that borrower appetite has indeed been on a plateau for some months. Crucially though, overall volumes have not fallen and investor appetite for quality loans remains high.

We then have the not insignificant point of the definition of Altfi. The volumes contributed by the short-term lenders or single invoice discounters look to escape all of the data sources mentioned above. We know that the banks have significantly reduced working capital provision for SMEs, have all those SMEs really turned into 'happy non-borrowers'? I doubt it.

What all this seems to tell us is that while the prolonged period of exponential growth for alternative finance has come to its inevitable end, the market is still thriving.

This then is not a time to be signaling the beginning of the end for Alternative Finance, but for lenders to be working even harder on loan origination. There has never been any such thing as an easy deal and there is no reason to believe there will be in future. Now more than ever, there is a need for relentless marketing effort to establish brand and product differentiation and to create and nurture demand.

We wait to see what the first round of post-Brexit data looks like.

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Neil Edwards


Neil Edwards

Neil is a Chartered Marketer and Fellow of the Chartered Institute of Marketing with many years' experience in marketing, brand and communications.

CEO / The Marketing Eye

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