Overall funding for small businesses is at a five-year high and has grown by 17 per cent in 2012/13, with an extra £1.5 billion of lending pushing the total to £10.5 billion.
This is a 64 per cent increase from 2008/9 and the largest NACFB contribution to SME funding in the last five years.
While the value of small business loans from conventional lenders is currently 27 per cent lower than in 2011, according to Bank of England statistics, SME funding through leasing and asset finance has grown by 125 per cent in the same period. It now makes up 22 per cent of alternative loans to small businesses, compared with just 7 per cent in 2007/8.
Adam Tyler, CEO of the NACFB, commented: “Alternative finance is providing life support to the sickly SME market and will be vital to give it extra impetus to boost the economic recovery. While the property market has been rejuvenated by the Funding for Lending Scheme and Help-to-Buy – transforming access to loans on residential property – small businesses have been neglected by mainstream lenders. These figures show that alternative options from leasing and asset finance to peer-to-peer lending are increasingly taking up the slack and plugging a vital gap.”The choice of alternative finance options for small businesses through the NACFB reached its highest ever point in 2012/13, with its membership now including 96 lenders – the most on record.
SME funding through asset finance has risen 125 per cent since 2011, while over the same period mainstream lending has dropped by over a quarter. Asset finance now accounts for just under a quarter (22 per cent) of alternative loans to SMEs, up from 7 per cent in 2007/08 – its largest contribution since before the recession. Peer-to-peer lending is also growing, and was up 80 per cent on last year. It emphasises the importance of alternative finance in the funding of SMEs.
Annual growth of 12 per cent during 2012/13 meant that leasing and asset finance made its largest contribution to small business funding since before the recession, according to the analysis of data from the National Association of Commercial Finance Brokers (NACFB).
Asset finance provides businesses with an alternative to traditional bank loans in the form of affordable, secure finance to buy equipment, vehicles and other fixed assets – typically using the asset itself as collateral.
Growing awareness of this funding route among the small business community saw £2.3 billion of loans secured through NACFB members during 2012/13 and boosted the average number of deals written by 59 per cent. Businesses also enjoyed greater access to leasing and asset finance with 11 per cent more NACFB brokers now active in this area.
The value of peer-to-peer lending and other new forms of small business finance also grew by 80 per cent in the last year. As businesses struggle to access mainstream funding from risk-averse lenders, this alternative route provided them with £501 million worth of loans from NACFB members in 2012/13 – the first time in three years this figure has exceeded half a billion pounds.Buy-to-let continued to account for just under a quarter (23 per cent) of SME funding in 2012/13 with NACFB deals worth £2.4 billion to small businesses. Commercial mortgages provided another £2.2 billion of funding – including 46 per cent more deals as more businesses explored this route – while invoice finance deals contributed £674 million.
Adam added: “High-street lenders are very selective in granting finance, which is stifling small businesses and slamming the brakes on economic growth, particularly jobs and wages. With no underwriting for their potential losses, high street lenders are still reluctant to support SMEs – leaving many choked of essential funds to make their ambitions a reality.
“SMEs need to be encouraged to seek alternative forms of finance, and the pick-up in lending activity through NACFB members shows a growing awareness and understanding of the available options. The job is far from done, however, and we need a collective effort if the UK is to adequately support entrepreneurship, boost job creation and achieve a full and permanent recovery.”
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