Small companies in southeast England are benefitting from a powerful restoration in financial institution lending, leaving the remainder of the UK trailing behind, in line with new analysis from the British Enterprise Financial institution.
Lending to companies within the area surged, driving a 21% rise in authorised loans and overdrafts throughout the UK within the first half of the yr, marking the primary optimistic motion in small enterprise finance for the reason that pandemic.
Knowledge from the report reveals that whereas lending within the South East elevated by 10% in 2023, different areas of the UK are nonetheless struggling. Final yr, the variety of authorised loans fell by 9% throughout the nation, with sharp declines in areas such because the North East and Wales. Furthermore, the entire worth of loans authorised dropped 18% nationwide, although the South East bucked this development, recording a 21% enhance in mortgage values.
Patchy restoration throughout areas
The uneven restoration in lending highlights the rising divide between the southeast and different components of the UK. The British Enterprise Financial institution famous that whereas lenders have proven higher warning in direction of mortgage approvals, companies within the South East have managed to safe much-needed finance, serving to increase financial exercise within the area.
Louis Taylor, chief government of the British Enterprise Financial institution, stated: “To the extent that there is an increase in the provision of bank finance to small businesses, credit card growth is the largest, overdrafts as well, and also leasing [asset finance], which has seen an almost post-Covid boom.”
Regardless of the robust efficiency within the South East, Taylor acknowledged the broader challenges dealing with small companies throughout the UK. Excessive rates of interest and cautious lending have curbed borrowing in different areas, with the North East experiencing a 24% drop within the quantity of loans within the first half of 2024, compounding a 37% fall the earlier yr. The North East, residence to key industries like manufacturing and agriculture, has been hit significantly onerous by the sluggish restoration in lending.
Bank card reliance and cautious confidence
The British Enterprise Financial institution report additionally revealed a major rise in the usage of bank cards by small enterprise homeowners, with many turning to this type of finance to fulfill short-term wants or to bridge gaps of their entry to loans. Taylor famous that the explanations behind this development had been unclear however could possibly be linked to restricted entry to different types of finance.
Though the demand for financial institution loans has been subdued, companies throughout the UK are more and more exploring various sources of finance. Final yr, 59% of debt funding for small and medium-sized enterprises (SMEs) got here from new lenders equivalent to Starling Financial institution, Funding Circle, and Skinny Cats, marking a shift away from conventional banks like Barclays, NatWest, and Lloyds, which dominated SME lending a decade in the past.
Nonetheless, companies are discovering the panorama for exterior finance extra advanced. “Companies will have multiple relationships for different things,” Taylor defined. “They will have some transactional banking relationships, others for things like foreign exchange. It is a more complex picture for SMEs, and we are doing what we can to guide them.”
Regardless of this, nearly all of small companies (72%) proceed to function with out exterior finance, a slight lower from 77% in 2022. Confidence in utilizing exterior finance stays low, with solely 33% of companies expressing confidence in borrowing to fund development.
Authorities assist and long-term funding
The British Enterprise Financial institution, established in 2014 to diversify entry to finance for small companies, has performed a vital position in serving to companies navigate the evolving monetary panorama. Because it marks its tenth anniversary, the financial institution has secured everlasting funding for its £7.9 billion in fairness and debt capital, following an announcement by Chancellor Rachel Reeves.
This long-term dedication consists of key funds such because the £660 million Northern Powerhouse Fund, which co-invests alongside private-sector companions to assist companies throughout the UK. Within the yr to March 2024, the fund invested £246 million in additional than 200 firms.
Louis Taylor hailed the choice as a “significant moment,” explaining that the brand new construction permits the financial institution to reinvest capital fairly than returning it to the Treasury. This variation, he stated, offers the financial institution higher flexibility in the way it allocates funds and positions it to be a extra credible investor in earlier-stage firms.
“We now have £7.9 billion of commercially focused capital that has a consistent risk appetite through the economic cycle. We will continue to write cheques into [venture] funds to cornerstone them and encourage others in, without compromising our underwriting standards,” Taylor added.
Because the South East continues to guide the restoration in small enterprise lending, different areas of the UK are hoping for extra assist to bridge the financing hole. With the British Enterprise Financial institution’s new long-term funding and dedication to diversifying finance, there are hopes that regional disparities in lending might begin to slender, supporting financial development throughout the nation.
