Small Business Finance Markets Report 2015/16 highlights a recovering UK market for small business finance
Report findings show that finance markets have continued to improve, but a number of challenges remain.
The Small Business Markets Report 2015/16 provides a unique and comprehensive insight into the health of a range of finance markets for smaller businesses against a backdrop of strong rates of new business formation.
Approximately 350,000 new enterprises have been registered in the last year and the UK now has a record population of 5.4 million smaller businesses. However, access to finance to grow and scale these businesses remains an issue.
The report offers an in-depth analysis of the landscape for smaller business finance in the UK across the three key areas of the Bank’s activity: start-up companies; those looking to scale-up; and supporting established smaller businesses that are aiming to stay ahead of the competition.
Findings shows that liquidity is returning and finance markets have continued to improve, notably equity finance, where investment in smaller businesses grew by 43% in the year to October 2015. In addition, the alternative finance sector saw business lending grow dramatically, increasing by 75% to £1.26bn in 2015.
Bank lending, which continues to be the main form of finance for smaller businesses, continues to improve too. After several years of contraction, 2014-15 saw four consecutive quarters of positive net bank lending to smaller businesses.
To support economic growth, this progress is vital. With over half (56%) of smaller businesses looking to grow their turnover in the next year, it is essential that suitable finance is available to support those growth ambitions.
While the report shows that the market for small business finance is improving, a number of challenges remain:
- A lack of businesses scaling-up is hampering UK productivity – there remains a need to stimulate a greater volume of scale-up businesses and SME exporters to counteract the UK’s lagging productivity. OECD data shows that Britain is near the bottom of the table for the percentage of businesses that grow to more than 10 employees after three years.
- A need to delivery further diversity in the small business finance market – there is an ongoing need to accelerate the evolution of a diverse and accessible range of finance options to drive competition and choice for smaller businesses. The four largest banks still account for 80% of the small business loan market in 2014, with many small businesses not looking at alternative finance options beyond their main bank.
- Supporting growing SMEs across all UK regions – the finance landscape remains uneven across the UK. To help rebalance growth, an increased availability of finance for smaller businesses across the UK is required. 71% of total SME equity investment is accounted for by London and South East based companies.
Keith Morgan, CEO of British Business Bank, commented: “Our second Small Business Finance Markets report reveals the complex picture of the current landscape for finance to smaller business in the UK. While there are encouraging signs that volumes are up and alternative finance markets are thriving, there remain areas that still require attention.
“In relation to the specific challenges outlined in the report, the Business Bank is well placed to respond and a number of our interventions have produced positive results. We are increasing our early stage equity interventions, through our Angel Co-Fund and Enterprise Capital Funds, to support businesses to scale-up. In addition, we will continue to drive greater market diversity as we support new entrants with our Investment Programme committing £353m of support to new and alternative suppliers of finance.
“Looking ahead, we have further exciting programs in the pipeline. We are piloting our innovative Help to Grow, a £100m programme, to support fast-growth businesses realise their potential. And we will play our part in supporting growth in the regions, most notably through the new £400m Northern Powerhouse Investment Fund announced by the Chancellor at the Autumn Statement.
I believe that alongside our existing programmes, these new initiatives will deliver further improvements in the UK’s finance markets, making them more dynamic and diverse. I look forward to working with our partners and the small business community to put these in place.”
Minster for Small Business Anna Soubry said: “Small firms are the engine room of our country and it’s great to see this report recognising their hard work and growth. Even though the lending landscape is improving, I’m well aware access to finance remains a big issue and want to see even more help for small firms looking to invest and create jobs for people. The government is taking steps to increase availability of alternative lenders like peer-to-peer platforms and challenger banks, through our support for the British Business Bank.”
For more information please contact:
British Business Bank
Rebecca Simon, Rebecca.firstname.lastname@example.org
Nick Taylor, email@example.com
Tel: 020 7199 2200
About British Business Bank
The British Business Bank was established to make finance markets for smaller businesses work better, enabling the sector to prosper, grow and build economic activity.
Its objectives are to:
- increase the supply of finance available to smaller businesses where markets don’t work effectively
- help create a more diverse and vibrant finance market for smaller businesses, with a greater choice of options and providers
- build confidence in the market by increasing smaller businesses’ understanding of the options available to them
- achieve this whilst managing taxpayer resources efficiently and within a robust risk management framework.
British Business Bank plc is a development bank wholly owned by HM Government. The British Business Bank operates through a number of subsidiaries, including British Business Financial Services Limited. Neither British Business Bank plc nor British Business Financial Services Limited is authorised or regulated by the Prudential Regulation Authority (PRA) or the Financial Conduct Authority (FCA). British Business Bank plc and its subsidiary entities are not banking institutions and do not operate as such. More information can be found at www.british-business-bank.co.uk