Markets update, December 2017

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, equity deals and asset finance. This December update highlights relatively flat bank lending, strong flows of venture and growth capital, and continued growth in asset finance.

Our annual comprehensive 2017/18 Small Business Finance Markets report will be published in February 2018. This report will examine market developments in more detail, including international and regional comparisons and deeper dives into the demand side.

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 is not readily available for some products.

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 £bn166167164166165 (Oct)+1.3%
Bank lending flows
Source: BoE
Net flows £bn (a)-2-2230.5 (Oct)-82%
Gross flows £bn (b)4353585948 (Oct)-2%
Other gross flows of SME finance
Private external equity investments
Source: Beauhurst
Investment value £bn 1.532.313.583.424.5 (Q3)+79%
No. of reported deals 972130914081148984 (Q3)+12%
Asset finance flows £bn
Source: FLA
12.914.415.816.914.2 (Sept)+13%

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 excludes overdrafts and covers loans in both sterling and foreign currency, expressed in sterling.

Analysis

We have seen ELEVEN consecutive quarters of positive net bank lending to SMEs, Although gross flows are flat

Gross bank lending (new loans) to smaller businesses was £14.5bn in the second quarter of 2017, which is around £0.3bn higher than it was for the same period in 2016.

Positive net flow (gross new loans minus repayments) of bank loans to smaller businesses has continued, with twelve consecutive quarters of positive net lending – totaling £6.3bn (cumulative) – through to Q3 2017.

The stock of bank loans and overdrafts was stable at £165bn at the end of October 2017 (Bank of England).

British BUsiness bank/UKBAA 2017 BUsiness angel spotlight survey launched

New research on business angel investment highlighted increased angel activity supporting growing businesses in 2016/17 41% of angels surveyed invested more in 2016 than they did in 2015, while only 26% invested less. The survey found a high concentration of angel investors in London and the South East.

Angel investors reported strong portfolio growth for 2016/17 in terms of both turnover and total employment – 43% reported turnover growth of over 20%, and 80% reported employment growth of over 20%.

Equity finance bounced back in 2017

Following the market slowdown in 2016, the flow of equity finance has substantially increased in Q2 and Q3 of 2017, with record deal numbers and investment amounts.

Compared to the first three quarters of 2016, the number of equity deals in 2017 grew 12% by number and 79% by investment value. The increase in investment value is mainly driven by a small number of very large deals.  Deal numbers increased for venture and growth stages in Q3, 2017, but seed stage deals have remained static (British Business Bank analysis of Beauhurst data). Our forthcoming Small Business Finance Markets report, published in February 2018, will examine developments in equity finance in more detail.

Asset finance and marketplace lending continued to grow

Data from the Finance and Leasing Association (FLA) shows new asset finance volumes to smaller businesses were £16.9bn in 2016, an increase of 7% from 2015. Figures for the year to date ending Q3 2017 show volumes of £14.2bn – 13% higher than the same year to date period in 2016.

Origination volumes through marketplace lending platforms continue to grow. The latest quarterly lending data from the Peer-to-Peer Finance Association (P2PFA) , covering the period between July and September 2017, confirms continued steady growth in levels of new lending and in the number of borrowers facilitating loans through peer-to-peer lending platforms for Q3.

Our next Markets Update will be based on the findings of our next annual Small Business Finance Markets 2017/18.