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 June 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
|2014||2015||2016||2017||YTD 2018||YTD change on previous year|
|Bank lending stock
|Outstanding amount £bn||167||164||166||166||166 (May)||+0.5%|
|Bank lending flows
|Net flows £bn (a)||-2||2||3||1||-0.1 (May)||-0.2bn|
|Gross flows £bn (b)||53||58||59||57||23.8 (May)||-1.5%|
|Other gross flows of SME finance|
|Private external equity investments
|Investment value £bn||2.48||3.70||3.11||5.89||1.26 (Q1)||+36%|
|No. of reported deals||1364||1498||1405||1487||329 (Q1)||-10%|
|Asset finance flows £bn
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.
Bank lending flat amid signs of tightening credit conditions
Gross lending in the first five months of 2018 has edged up, rising by 1.5% compared to the same period last year according to latest Bank of England data. However, due to a slightly higher rise in repayments, the net flow of bank loans to SMEs weakened to a negative £0.1bn.
In addition, there are indications that the supply of credit to smaller businesses has tightened slightly. In Q2, the BoE Agents’ summary of business conditions stated that small firms reported increasing difficulty accessing traditional bank finance, and the FSB Voice of Small Business Index showed the availability of credit declined for the second quarter in a row to the lowest in more than two years.
Data from the Finance and Leasing Association (FLA) shows new asset finance volumes to smaller businesses were £4.4bn in Q1 2018, which is similar to the same period in 2017.
Equity finance volumes grow strongly, but deal numbers decline
The value of private equity deals in Q1 exceeded £1bn for the fourth quarter in a row and was up 36% compared to Q1 2017. However, deal numbers were down 10% over the same period, which signals an increase in average deal sizes driven by a small number of larger deals.
Our Equity Tracker report, published on July 5, will examine developments in equity finance in more detail.
SME confidence regains some lost ground, but use of finance continues to decline
The FSB Voice of Small Business Index reported that confidence rose in Q2 2018 for the second quarter in a row to a one-year high. Previously, confidence fell for most of 2017 to end the year in negative territory.
Latest SME Finance Monitor data suggests that the share of SMEs reporting growth is stable at around 40%, with nearly half planning to grow, a similar result to the FSB survey. Yet only 1 in 3 SMEs currently use external finance, which is somewhat lower than in 2017, and the share of SMEs planning to apply edged down to 8% in the 3 months to May.