Markets Update June 2017

This February we published our latest comprehensive report on small business finance markets in the UK, Small Business Finance Markets 2016/17. As part of our ongoing monitoring of market conditions, our quarterly Markets Updates provide an overview of SME finance markets, drawing on the latest evidence on estimates of stocks and flows of external finance used by SMEs in the UK. This includes bank lending, use of external finance and the number and value of equity deals.

The net flow (gross bank lending minus repayments) of new bank loans (excluding overdrafts) to smaller businesses has continued to grow, with ten consecutive quarters of positive net lending – totalling £5.8bn – through to Q1 2017. Lending to smaller businesses was £15.4bn in the first quarter of 2017, which is almost £1bn lower than it was in Q1 2016 (Bank of England).

The stock of bank loans and overdrafts was estimated at £164bn at the end of April 2017 (Bank of England).

The number and value of equity deals declined in 2016, following strong growth over the previous five years. Asset finance and marketplace lending continue to grow.

The flow of equity finance to smaller businesses declined in 2016 – the first annual decline in five years – as a result of a wider slowdown in equity markets worldwide.

In Q1 2017, there were 297 equity deals, with a total investment value of £0.9bn. Both figures are lower than in Q1 2016 (Beauhurst).

Data from the Finance and Leasing Association (FLA), plus our own calculations, suggest that new asset finance volumes to smaller businesses were £16.9bn in 2016, an increase of 7% on 2015. Figures for Q1 2017 show volumes of £4.5bn – 11% higher than Q1 2016.

The Peer-to-Peer Finance Association (P2PFA) has commented that the first quarter of 2017 showed Peer-to-Peer Lending volumes continuing their strong trajectory of growth

Increase in use of external finance at the end of 2016 has not been sustained into 2017, except in the case of larger SMEs.

The SME Finance Monitor shows an increase in use of external finance amongst SMEs from April 2016 to December 2016 – from 36% in Q2 2016 to 46% in Q4 2016. This increase was almost entirely driven by the zero employee SMEs (31% to 44%). However, the 3 months to April 2017 show lower levels of use of finance (37%), again due primarily to the zero employee SMEs where use has dropped (32%).

Larger SMEs, defined as having 50-249 employees, have seen an increase in use of external finance in 2017, with around two thirds using external finance at the start of 2017 increased to 80% in the 3 months to April 2017.

Small business confidence fell in Q2 2017. However, confidence remains higher than a year ago.

Confidence as measured by the FSB Small Business Index fell in Q2 2017 to 15.0 from 20.0 in Q1 2017, although small business confidence remains higher than a year ago. Business confidence has been steadily declining from Q2 2015. Confidence improved from -2.9 in Q3 2016 to 8.5 in Q4 2016 and now stands at 15.0 in Q2 2017.

Summary of aggregate flow and stock of finance to smaller businesses

The table below brings together the latest data from multiple sources, to present a snapshot of the current values of various types of external finance – and the number of reported deals for equity investment – provided to UK smaller businesses. Please note that (a) flows of different types of finance are not directly comparable, since data sources may duplicate funding sources, and (b) consistent and comprehensive data outlining the value of the aggregate stocks and flows for all products is not readily available.

Estimates of the flow and stock of external finance for SMEs, £ billions

 
  2013201420152016YTD 2017YTD change on previous year
Bank lending stock
Source: BoE
Outstanding amount £bn166167164165164 (Apr)+1.9%
Bank lending flows
Source: BoE
Net flows £bn (a)-4-4230.0 (Apr)-1.1
Gross flows £bn (b)4353585919 (Apr)-8%
Other gross flows of SME finance
Private external equity investments
Source: Beauhurst
Investment value £bn 1.532.313.583.420.93 (Apr)-3.9%
No. of reported deals 972130914081148297 (Q1)-2.0%
Asset finance flows £bn
Source: FLA
12.914.415.816.94.5 (Mar)+11%

The information contained in this table should be viewed as indicative as data and definitions are not directly comparable across different sources. There can be some double counting across estimates in different parts of the table. Flows data are cumulative totals for the year or to the date stated. Non-seasonally adjusted.

(a) Net flows figures do not always reconcile with change in stock because of differences in statistical reporting.

(b) Data exclude overdrafts and covers loans in both sterling and foreign currency, expressed in sterling.