Opportunity for lenders as SMEs outside of London struggle to access finance
HIGH-GROWTH businesses are springing up all over the country, but those outside of London are struggling to obtain finance, research has claimed.
A report by the Institute for Public Policy Research (IPPR) said that there are 12,000 high-growth enterprises all over the UK – which it defines as companies with more than 10 employees and an employee or turnover growth rate of 20 per cent over a period of three years.
However, the think-tank found that supply of finance is extremely regionally imbalanced and urged the government to give the British Business Bank a specific mandate to help businesses outside of the capital.
It also called for a review of the enterprise investment scheme and seed enterprise investment scheme to make sure that businesses outside of London could benefit.
The report, which looked at all types of lenders, found that the regional pattern of peer-to-peer lending was similar to other sources of finance.
Individuals and businesses in the South East and London receive the highest proportion of P2P lending, while Wales and the North East recorded some of the lowest total loan amounts. However, taking into account the variation in regional populations, businesses and individuals in these areas have among the highest levels of P2P lending per head.
“While borrowers are reasonably well distributed across the regions, there are substantially more lenders active in London and the South East,” the report said. “[But] the regional allocation of funds on these sites is not a deliberate decision made by lenders. In the case of RateSetter for example, investors do not know which individuals or businesses they are investing in.
“This suggests the platforms may offer scope for lenders on P2P sites and investors on equity-based crowdfunding platforms to lend further afield than their traditional bank and equity rivals would consider, without the need for a strong regional presence.”
The research also found that there was a lack of awareness of P2P lending among small firms.
“Despite recent remarkable growth, Nesta found that 76 per cent of SMEs, in a nationally representative survey, were unaware of P2P lending,” the report said.
“This lack of awareness may be acting as a constraint on demand.”
The report highlighted concerns previously expressed by Lord Adair Turner, that the sector could make larger losses in the future.
“Due to its status as a new market, with little experience of economic downturn, the exact nature of the P2P business model, and the risks involved in both lending and borrowing via these sites relative to those associated with traditional banks, may not be fully known and understood by P2P customers,” it said.