Small business lending shows signs of improvement

Lending volumes to small businesses increased at a steady rate throughout 2016, driven by growth in asset finance and peer to peer business lending, a new study has revealed.

Levels of lending were up on previous years according to the Small Business Finance Markets report, the British Business Bank’s comprehensive study of financial conditions.

Small firms were found to be those that are benefitting most from current conditions, as growth in lending to SMEs has increased for eight consecutive quarters.

Asset finance increased to total £16.8 billion in 2016, with peer-to-peer lending accounting for a further £1.3 billion.

It comes despite the majority of SMEs displaying a lack of understanding around asset based lending options and their benefits.

The report found that economic uncertainty and conditions relating to Brexit have dented business confidence.

Whereas 56% of small firms had expected to grow in 2015, that figure dropped to 37% in 2016, while the majority of firms suggested they would want to expand at a slower rate, rather than borrow more to grow faster.

This suggests many are aware of their financial position and of the need to carefully monitor their cash flow to reduce the threat of insolvency.

Application rates to borrow finance have fallen, with businesses opting for alternative finance options. Those seeking debt facilities in the first six months of last year fell to just 6%, down from 11% in 2012.

The use of equity finance meanwhile was centred in London and the South East, with 58% of deals and 69% by value in the two regions.

The British Business Bank has revealed it is to support a number of programmes to aid scale-up firms and is due to invest heavily in the North to even out the regional imbalance.

A key aspect for small business revolves around knowing what options are available to them and seeking advice when necessary, especially if they are facing financial difficulties, or fear may they may do so in the future.

By Phil Smith

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