Markets Update, March 2018

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 March update highlights relatively flat bank lending but strong growth in alternative finance.

For market developments in more detail, including international and regional comparisons and deeper dives into the demand side, please see our 2017/18 Small Business Finance Markets report.

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

  20132014201520162017YTD change on previous year
Bank lending stock
Source: BoE
Outstanding amount £bn166167164166165-0.6%
Bank lending flows
Source: BoE
Net flows £bn (a)-2-2231-67%
Gross flows £bn (b)4353585957-3%
Other gross flows of SME finance
Private external equity investments
Source: Beauhurst
Investment value £bn 1.572.483.703.115.89+89%
No. of reported deals 9891364149814051487+6%
Asset finance flows £bn
Source: FLA
12.914.415.916.718.6+12%

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

Net flow of bank lending products remained positive in 2017 but weaker than the previous 2 years

The annual net flows of bank loans (new loans, excluding overdrafts) to smaller businesses has continued to grow, albeit at a slower pace.

However, following twelve consecutive quarters of positive net lending, Q4 in 2017 was slightly negative. In 2017 net lending stood at £0.7bn, well down on the £3bn in 2016. This trend has continued into the early 2018 data too.

The stock of bank loans and overdrafts was estimated at £165bn at the end of 2017, reflecting a decline in the stock of loans offset by an increase in overdrafts.

(Bank of England Bankstats)

Equity finance bounced back in 2017

Q4 completed a strong year for equity finance to SMEs following a lull in 2016.

Compared to 2016, equity deals in 2017 grew 6% by number and 89% by investment value. The increase in investment value is mainly driven by a small number of very large deals.  Deal numbers are now back at the same level, whilst investment values are over 50% higher than the peaks reported in 2015. Our forthcoming Equity Tracker report, published in later in the year, 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 £18.6bn in 2017, an increase of 12% from 2016. This represents a 7th consecutive year of growth.

Origination volumes through marketplace lending platforms have also continued to grow. The latest lending data from AltFi Data, covering 2017, confirms continued strong growth, in levels of new lending through peer-to-peer lending platforms. Gross flows of lending to businesses via peer-to-peer platforms reached £1.78bn in 2017, an increase of 51%.

Demand for finance at record lows

Demand for external finance by UK smaller businesses has continued to decline. Our analysis of the BDRC SME Finance Monitor shows new debt application rates have fallen every year since 2012 and 2017 has continued this trend.