3rd September 2015

BBA responds to latest FLS data

Commenting on the publication of the Bank of England’s Q2 2015 Funding for Lending Scheme statistics, BBA Executive Director of Business Finance Irene Graham said:

“These new figures underline that banks are helping smaller businesses do what they do best – drive economic growth and create jobs.

“Banks are using the Funding for Lending Scheme to lower the cost of borrowing for businesses. This means that lenders are offering a range of highly competitive deals at a time when interest rates are already at a record low.

“Borrowers should feel confident about applying to their bank for finance. The SME Finance Monitor shows that nearly eight out of 10 businesses that applied for finance in the past 18 months were given the green light.”

Notes to Editors

The Funding for Lending Scheme Q2 2015 data is available here

SME Finance Monitor:

  • The SME Finance Monitor investigates the availability of external finance for the UK’s SMEs. The largest and most frequent study of its kind in the UK, the research is commissioned by the Business Finance Taskforce and is produced independently under the governance of an external Chairman and a steering group.
  • A full copy of the SME Finance Monitor is available at: www.sme-finance-monitor.co.uk.
  • Key findings of the SME Finance Monitor: Q2 2015 include:
    • Businesses are much more likely to get funding than they think – Confidence that the bank would lend remained below the actual levels of success reported to date. 62% were confident that their renewal would be successful, compared to current success rates of 100%, while 46% were confident about a new facility, compared to a 55% success rate.
    • Approval rates – 79% of applications for finance in the last 18 months were successful, with improving success rates in recent quarters.
    • Most discouragement indirect – 3% of SMEs met the definition of a ‘would-be seeker’ of external finance, who had wanted to apply for a loan or overdraft but felt that something had stopped them. This proportion has slightly fallen over recent quarters. The main reason cited for not seeking borrowing was discouragement – an indirect assumption they would be turned down.
    • Risk profile of businesses – the proportion of SMEs rated a worse than average risk currently stands at 45%, down from 47% in Q2 2014.
    • Three quarters of all SMEs don’t want finance – 80% of SMEs interviewed said they did not seek external finance, nor did anything stop them from doing so.
    • Access to finance not seen as a barrier to growth – amongst all SMEs just 5% rated access to finance as a major obstacle to their business. This comes behind the current economic climate (14%), legislation and regulation (11%), political uncertainty/future government policy (10%) and cash flow/late payment (9%).
    • Businesses looking to be debt free – 73% of SMEs are looking to pay down debt and remain debt free.
  • Key findings of the SME Finance Monitor 2014: Annual Report include:
  • SMEs still felt that the current economic climate was the greatest obstacle to running their business in the next 12 months with 14% citing this as a major obstacle. 11% of SMEs identified legislation and regulation, 8% issues with late payment and 6% highlighted access to finance as major obstacles.
  • The SME Finance Monitor found that over 7 out of 10 loan and overdraft applications to date have resulted in finance over the lifespan of the monitor.
  • 79% had not had a borrowing event, and also said that they had not wanted to apply for any (further) loan/overdraft funding in the previous twelve months
  • 81% seeking overdrafts were offered the facility in 2014. 70% were offered what they wanted and took it while 11% took an overdraft after issues.
  • 65% seeking a new or renewed loan were offered the facility in 2014. 49% were offered what they wanted and took it while 16% took a loan after issues.
  • 43% said they were planning to grow in the next twelve months.
  • 43% were permanent non-borrowers, up from 34% in 2012

Note: The SME Finance Monitor research is based on 5,000 interviews of small and medium businesses conducted independently by BDRC-Continental each quarter. It assesses the attitudes and experience of the whole spectrum of SME businesses, from sole proprietors to small employers, to businesses with 250 employees, in their use of the whole range of external finance options (not just bank finance).

New lending is increasing

  • Bank of England data shows that gross lending to SMEs began to rise in April 2013 and has risen every month since year on year.
  • Gross borrowing by SMEs in the last three months for which figures are available (May 2015 – July 2015) rose 6% on the same three months a year earlier to £14.5 billion.
  • See BBA graph showing gross lending to SMEs here.

As new lending rises, businesses continue to repay loans

Cash held by businesses continues to rise

  • At the end of Q1 2015, cash held by SMEs in current and deposit accounts totalled £151.6bn, a 10% increase in balances from end-March 2014 (BBA SME statistics – Q1 2015).

The cost of finance is falling

  • Interest rates are at historic lows, as can be seen by table 2.3 in the Bank of England’s Trends in Lending data for April 2015.
  • The table shows that credit conditions have eased in recent months and we are now seeing lower borrowing rates feed through into cheaper lending rates.
  • The table also shows indicative lending rates for SMEs which have fallen slightly in recent months. This is consistent with some of the Bank’s recent Agents’ reports and the Credit Conditions Survey.
  • The FSB Small Business Index for Q2 2015 reveals that 57% of successful applicants were offered a loan with interest of less than 5%, an increase on the share a year ago.

The majority of finance applications are approved

  • The SME Finance Monitor** investigates the availability of external finance for the UK’s SMEs. It found that nearly 7 out of 10 loan and overdraft applications to date have resulted in finance over the lifespan of the monitor.
  • The FSB Small Business Index for Q2 2015 reveals that 54% of SMEs were successful in accessing bank credit, up from 47% in Q2 2014. The FSB stated that this “credit affordability and availability have both reached their highest levels since the SBI started”.

Mergers and acquisitions have boosted demand for lending

  • Businesses across all sectors reported that an increase in mergers and acquisitions had a positive impact on demand for lending increased across all sectors in 2014 Q1.
  • The Credit Conditions Survey shows that the net positive balance for mergers and acquisitions’ contribution to changes in demand for lending increased from 14.3 to 27.0 and is expected to grow next quarter.
  • The Deloitte 2013 Q4 survey of Chief Financial Officers in the UK found that the top priority for CFOs was expansion. They are placing greater emphasis on capital spending and 88 % expect M&A activity to increase in 2014.
  • According to KMPG’s 2014 M&A Outlook Survey, nearly three-quarters of C-level executives surveyed expected their company to make an acquisition in 2014. Commenting on the survey, national sector leader for private equity Marc Moyers said: “Firms are looking to expand into new markets and lines of business… 2014 could be a very active year.”
  • A survey by Thomson Reuters and Freeman Consulting Services found that companies expect a 17 % rise mergers and acquisitions activity globally in 2014 that would push global deal volume to its highest level since 2008.

Credit Conditions Survey

The Bank of England’s Credit Conditions Survey 2015 Q2 can be downloaded here. Key quotes from the survey:

  • “The overall availability of credit to the corporate sector was reported to be unchanged in Q2, but was expected to increase a little in the following three months. The availability of credit to small businesses increased in Q2, with the net percentage balance the highest since 2010 Q3.”
  • “Spreads for small businesses were unchanged”
  •  “Demand for lending from small businesses increased significantly in Q2, while demand from large corporates also increased and was unchanged for medium-sized companies. Demand was expected to increase for each size of business in Q3.”
  •  “Default rates on corporate lending fell again in Q2, particularly on lending to small businesses. Losses given default fell in Q2 for businesses of each size.”

Over recent years the difficult economic climate has suppressed demand for finance:

  • Banks are committed to increasing demand for finance through initiatives such as Better Business Finance as well as providing help and support through Mentorsme.co.uk. However, 79% of SMEs interviewed in the latest SME Finance Monitor said they did not seek external finance, nor did anything stop them from doing so.
  • The FSB Small Business Index for Q2 2015 shows that 15% of firms applied for credit.

Better Business Finance’s lending and appeals process campaign

  • The BBA and Britain’s major largest retail banks launched the Better Business Finance (BBF) programme in 2010 to build confidence and provide support to businesses seeking finance.
  • In January 2014, the BBF launched a year-long campaign that aims to raise awareness among businesses and entrepreneurs that they are a lot more likely to secure bank finance than they think.
  • The campaign also seeks to provide supportive tools and information for businesses, and highlight the Appeals Process for businesses to challenge a bank’s decision to turn down a loan or other type of finance.

Banks are working to increase access to alternative finance providers

  • The industry is working with alternative finance providers to ensure businesses can get the right finance at the right time. Partnerships with institutions like the UK Business Angels Association and Community Development Finance Institutions give businesses that are inappropriate for finance from banks the option to be referred to Community Development Finance Institutions (CDFIs).
  • The BBA and some of the major banks have launched a pilot referral program for Start Up Loans. As part of this pilot, business start-ups that are inappropriate for bank finance will be given the option of being referred to The Start Up Loans Company. This pilot builds on the referral scheme for CDFIs.
  • A new “Finance Finder” – betterbusinessfinance.co.uk – offers businesses access to 500 finance providers across Britain.
  • The Business Growth Fund gives fast growing businesses a capital boost of up to £10 million. To date, the bank-financed fund has invested over £430 million in British businesses across a broad range of sectors including energy, retail and hospitality.

Levels of alternative finance are growing

  • UK businesses have a traditional overreliance on bank finance with banks providing nearly 80% of all credit. For example, only 3% of SMEs use equity finance in the UK compared to an EU-wide average of 7% and 41% in Denmark.
  • A record £19.3 billion was borrowed from asset-based lenders in the three months to the end of June 2014 according to the Asset Based Finance Association.
  • The Bank of England’s Trends in Lending data from October 2014 reveals that peer-to-peer business lending has grown by 50% to £280million in six months. In addition, invoice trading has more than doubled since 2012.
  • The peer-to-peer lending industry lent more than £1.3 billion in 2014 according to the Peer-to-Peer Finance Association.
  • Loan and overdraft borrowing from the main 5 banks by SMEs in Great Britain accounts for around 60% of all SME borrowing from banks (BBA statistics).

Supporting Britain’s entrepreneurs:

Under the industry-funded Better Business Finance programme, banks have introduced a broad range of initiatives to help support SMEs:

  • Business Growth Fund – improved access to finance through initiatives like the Business Growth Fund which gives fast growing businesses a capital boost of up to £10 million. The bank-financed Fund has invested over £370 million in British businesses across a broad range of sectors including energy, retail and hospitality.
  • Appeals Process – ensured fairer treatment for customers by establishing an independently monitored appeals process so that those who are turned down for loans can challenge the original decision.
  • Finance Finder – created a new “Finance Finder” – betterbusinessfinance.co.uk – with access to 500 finance providers across Britain.
  • CDFI referrals – worked with the alternative finance providers like the UK Business Angels Association and CDFI. To offer SMEs other avenues of finance, banks are developing a programme to give businesses that are inappropriate for finance from banks the option to be referred to Community Development Finance Institutions.
  • Mentoring – as part of the industry-funded Better Business Finance programme, banks have come together to support a network of business mentors across Britain in the form of MentorsMe.co.uk. providing businesses with access to over 27,000 business mentors.
  • Supporting exporters – to support SMEs accessing overseas markets, regional Export Mentoring Clubs have been established to improve the dialogue between businesses, the banks and UKTI.

Stats links

The BBA’s latest statistics Banks’ support for SMEs – 1st Quarter 2015 can be downloaded here.

The Funding for Lending Scheme Toolkit for Q1 2014 can be downloaded here.

* Note: contributors to the BBA’s regular datasets are Barclays, HSBC, Lloyds Banking Group (including HBOS), National Australia Bank UK (Clydesdale, including Yorkshire Bank), Royal Bank of Scotland Group (including NatWest), Santander and The Co-operative Bank.

** Note: The SME Finance Monitor research is based on 5,000 interviews of small and medium businesses conducted independently by BDRC-Continental each quarter. It assesses the attitudes and experience of the whole spectrum of SME businesses, from sole proprietors to small employers, to businesses with 250 employees, in their use of the whole range of external

Please register or login to add this to your interests.