Big drops in demand for peer-to-peer lending and equity investments in 2019, although figures still coming in.
Demand for finance from Britain’s 5.9m small businesses was flat at best in 2019 with big falls in peer-to-peer lending and equity investments
The amount of peer-to-peer and other marketplace lending to SMEs fell from £2.37bn in 2018 to £1.9bn in the first nine months of 2019.
And equity investments were also down from 2018’s figure of £6.7bn invested to £5.5bn by September last year, according to the British Business Bank.
According to the latest 2020 Small Business Finance Markets report, equity deal volumes were well down with 1,241 deals closed in 2019 compared with 1,602 the year before.
Bank lending to SMEs was also down by nearly 2 per cent year on year at £57bnbn lent in 2019 (£58bn in 2018).
However, Britain’s state business bank points out that the final picture will be rosier as the figures only cover the first three quarters of 2019. Many deals are only reported months after they closed.
Alice Hu Wagner, a senior executive at British Business Bank, said: “Equity in particular is pretty lumpy in terms of deals over any given year, so it can pick up the fourth quarter. That said, Q4 2019 was exceptional because of the election.”
| Volumes of main SME external finance products (£bn) | |||||||
|---|---|---|---|---|---|---|---|
| Source: British Business Bank | |||||||
| Type | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | |
| Bank lending stock | 167 | 164 | 166 | 165 | 166 | 168 | |
| Bank lending flows | 53.4 | 57.9 | 59.2 | 57.3 | 57.7 | 56.7 | |
| Private external equity investments | 2.9 | 4.2 | 3.9 | 6.4 | 6.7 | 5.5 (Sep) | |
| No of reported private equity deals | 1406 | 1562 | 1524 | 1710 | 1602 | 1241 (Sep) | |
| Asset finance flows | 14.7 | 16.3 | 17 | 19 | 19.4 | 20.1 | |
| Marketplace lending business lending flows | 0.5 | 0.9 | 1.39 | 1.99 | 2.37 | 1.9 (Sep) |
Matt Adey, director of economics at British Business Bank, adds that business confidence was very low in 2019 but since the election, surveys suggest it is ticking up.
“That will translate into investment plans,” Adey said. “There’s the prospect of things improving but that will take time to come through.”
Small business averse to finance
The question remains however as to why Britain’s small business owners are so averse to taking in external finance, especially when the UK leads the world in alternative finance for small business.
Last year, nearly three quarters (73 per cent) of small businesses said they would accept slower growth rather than take on external finance. Despite the boom in alternative funding and campaigns to educate small business owners, the figure has remained stubbornly flat (70 per cent in 2016).
Hu Wagner said: “About half of all business owners want to stay as from external finance as possible. They don’t have any finance, they never want to think about finance, they don’t want any finance at all.
“Finance can be a little bit intimidating. Business owners are busy running their business and they don’t really care about finance. Everybody knows about overdrafts and business bank accounts, after that they have to go into a deep dive into alternative finance, which can be scary.”
>See also: British Business Bank increases small business support by over a quarter in the past year
Another issue is that business owners are still wary of banks after the financial crisis.
However, according to Adey, the percentage of SMEs which will consider applying for equity in the future is now up to 15 per cent, which is much higher than it used to be.
Meanwhile, more than half of smaller businesses (56 per cent) surveyed expected the UK’s exit from the EU to have no impact on their growth. This is because, explained Hu Wagner, most SMEs neither import nor export.
