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British Business Bank: positive growth for asset finance in 2017

Research from the British Business Bank Small Business Finance Marketsreport has shown that asset finance and leasing is competing well against other products in the small business market.

The value of SME asset finance deals (up 12%) and peer-to-peer business lending (up 51%) in 2017 both showed strong growth.

Data from the Finance and Leasing Association (FLA) suggests that new asset finance volumes with smaller businesses was over £18.6bn by the end of 2017, an increase of 12% on 2016.

Although net bank lending volumes remained positive (£0.7bn) in 2017, they were weaker than in both 2016 (£3bn) and 2015 (£2bn). Significant increases were seen in 2017 in both the value and number of SME equity deals (up 79% and 12% respectively).

The report finds a decline in smaller business confidence and low demand for external finance is becoming entrenched as their cash balances rise. Bank analysis finds that, over the last ten quarters, only 1.7% of smaller businesses sought new loans, a record low since the SME Finance Monitor began in 2011.

Less than half (43%) were confident they would get a loan if they applied, even though most new loan applications (72%) are approved. Moreover, 70% of SMEs are willing to forgo growth rather than borrow, continuing a trend identified in last year’s Small Business Finance Markets report.

Total invoice & asset-based lending advances to smaller businesses continue to rise and across all sizes of smaller businesses, the BBB found.

Data from the report has shown that the number of new loans among small firms has dropped to its lowest level since 2011.

Keith Morgan, British Business Bank chief executive, said: “A core objective of the British Business Bank is to encourage greater diversity of finance, so we welcome the growth in the uptake of equity finance and other alternatives to traditional lending.

“It can’t be overstated how important it is to build a more complete funding ladder for economically important high-growth businesses no matter where they are located. Scale-ups need more long-term patient capital throughout all stages of their development to be world-beating companies, and we look forward to using our new resources allocated at Autumn Budget to unlock more of this type of capital.”

Federation of Small Businesses (FSB) National Chairman Mike Cherry, said there were positives in the report for the wider SME lending sector, especially in London and the South East.

Cherry said: “But the fact that less than 2% of UK small firms sought new loans over the last couple of years is a real concern. We’re lagging behind the US when it comes to venture capital investment in businesses to the tune of millions. That has to change.

“Lots of small firms simply aren’t up to speed on all of their options. Increasing numbers are applying for asset-based loans and exploring the P2P route which is encouraging.

When it comes to equity finance, many small businesses are hesitant about selling a stake in their firm, even though it could be the right move for them. Small firms will often start their finance journey by speaking to the bank they’ve always dealt with, leading them down a more traditional debt route that won’t suit everyone.

“There’s also the issue of low awareness when it comes to government support. More than two-thirds of firms aren’t aware of the Enterprise Investment Scheme, for example.

“The £2.5bn handed to the BBB in the Autumn will be vital to helping tackle these issues. With Brexit edging ever closer, we’re set to lose hundreds of millions in small business support from EU funding streams. We need to see further guarantees from the Chancellor that small firms won’t lose out.”

Simon Goldie, head of asset finance at the FLA, said: “The 12% growth in asset finance new business that went to SMEs in 2017 demonstrates that leasing and hire purchase are vital sources of funding for these businesses.

“Improving the growth and productivity of smaller businesses is critical to the economy, so we welcome the BBB’s plan to stimulate demand for funding by introducing a new digital information hub in Spring 2018. The knowledge-gap in business funding has persisted for too long, and continues to hamper firms in their search for the right finance product.”

Source: Verdict

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Pension funds, small businesses boost growth in UK alternative finance

LONDON (Reuters) – Britain’s alternative finance market grew by 43 percent in 2016, research showed on Friday, with interest from start-ups, small businesses and institutional investors helping to boost demand for services such as crowdfunding and peer-to-peer lending.

Last year, 4.6 billion pounds ($6.2 billion) was raised through alternative channels, up from 3.2 billion pounds in 2015, according to a survey of 8,300 investors and 77 crowdfunding or peer-to-peer platforms.

“Alternative finance has entered the mainstream and is likely here to stay,” said Byran Zhang, executive director of the Cambridge Centre for Alternative Finance (CCAF) at the university’s Judge Business School, which conducted the survey.

Approximately 72 percent of the year’s market volume, or 3.3 billion pounds, was driven by demand from start-ups and small businesses. That was up from 50 percent the year before.

Major banks reined in their lending in the wake of the financial crisis, and many small businesses complain of poor treatment and difficulty accessing funds.

Several alternative finance providers have sprung up to try to fill the gap, such as peer-to-peer lender Funding Circle, which announced this week it had lent more than 3 billion pounds to almost 40,000 businesses since its launch in 2010.

Another, MarketInvoice, offers peer-to-peer loans secured against businesses’ invoices and has lent 1.7 billion pounds since 2011.

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After peer-to-peer business lending, the biggest categories were peer-to-peer consumer lending, peer-to-peer property lending, invoice trading, equity-based crowdfunding, real-estate crowdfunding and reward-based crowdfunding.

Institutional investors including pension funds, asset managers and banks were also increasingly backing the platforms, the survey showed. Funding from these sources accounted for 34 percent of peer-to-peer property lending, 28 percent of peer-to-peer business lending and 32 percent of peer-to-peer consumer lending.

 Peer-to-peer lending can offer relatively high returns. Funding Circle, for example, currently boasts an all-time average annual return of 6.6 percent.

But the sector’s fast growth has also caught the attention of the Financial Conduct Authority, which is looking at introducing new regulation for the sector, highlighting concerns about past loan losses and due diligence.

This week, peer-to-peer lender RateSetter, the UK’s third-largest, reported a pretax loss of 23.7 million pounds after it took a hit from a bad loan.

Source: UK Reuters