Confidence falls among small firms despite lending jump

There has been a jump in the overall volume of lending to small businesses in the UK, but many firms are 'holding back on their ambition' with a drop in confidence levels.

Small firms appear wary of seeking finance to boost their business. Picture: John Devlin
Small firms appear wary of seeking finance to boost their business. Picture: John Devlin

The latest British Business Bank report on small business finance markets found that the net flow of bank funding – comprising new loans and excluding overdrafts – to smaller businesses has kept rising, with eight quarters in a row of positive net lending totalling £5.3 billion through to the third quarter of 2016.

Further to this, asset finance and peer-to-peer business lending increased “particularly strongly” last year to £16.8bn and £1.3bn respectively.

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In terms of total UK SME equity investments, this fell last year after a record 2015, and Scotland accounted for 6 per cent of deals, and 3 per cent by value. That is compared to 58 per cent of deals and 69 per cent by value for the London and South-east.

Keith Morgan, chief executive of the British Business Bank, said last year “saw smaller firms benefiting from improving credit conditions and encouraging growth in the volume of alternative finance available. While this continued improvement is welcome, our report shows that smaller businesses still face challenges on their growth journey.

“Despite the improvement in finance markets, many seem to be holding back on their ambition, not simply because they can’t access finance but because they’re cautious about seeking it in the first place.”

The study found that about 70 per cent of small firms would favour slower growth over borrowing, and the proportion expecting to grow this year in fact fell to 37 per cent from 56 per cent 12 months previously.

Morgan added that on the back of the report, the lender will keep focusing on three key areas to help boost the growth potential of small businesses across the UK.

These comprise providing capital to the scale-up businesses “that play an important role in driving economic growth”, addressing regional imbalances with ventures like the Northern Powerhouse Investment Fund, and driving awareness of, and confidence in, using the finance options available to them.

Margot James, UK small business minister and scale-up tsar, said that last year the UK government gave an extra £400 million to the British Business Bank “to help unlock later-stage venture capital investment”.

She added: “I want firms to have the confidence to invest in the opportunities available to them.”