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Peer2Peer Finance News | June 25, 2019

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“Brexit bite” hampers small business use of asset-backed lending

“Brexit bite” hampers small business use of asset-backed lending
Marc Shoffman

ASSET-BACKED lending to small businesses has hit a three-year low, research suggests.

Analysis of UK Finance data by business software provider Equiniti found total advances to businesses with a turnover of less than £1m a year reached £1.1bn at the end of the third quarter of 2018 – down nine per cent on the same period three years ago, which was just ahead of the EU referendum.

Aaron Hughes, managing director at Equiniti Riskfactor, said the “Brexit-bite” has been particularly strong for these smaller businesses in 2018 with advances of asset-based lending and invoice finance declining significantly in two consecutive quarters.

Read more: Treasury pushes back on plans for tighter rules on business lending

As of September, borrowing had declined by £97m compared to the end of the second quarter of 2018 and by £221m compared with the end of the first quarter.

In contrast, larger businesses turning over more than £50m borrowed £10.4bn in the third quarter of 2018, up from £8.1bn in the same period of 2015.

While the rate of growth has certainly slowed since the Brexit vote, Equiniti said, there was still a significant increase through the third quarter, with advances rising by £946m.

“Businesses remain in the dark over the end state of negotiations between London and Brussels,” Hughes said.

Read more: Property market and SMEs at risk amid new Brexit chaos

“Until there is a clear Brexit path, smaller businesses do not appear keen to borrow more via invoice finance or other asset based lending channels to preserve their financial integrity.

“This lending offers quick, reliable cash on flexible terms to minimise risks that are inherent in the cashflow systems of many smaller businesses.

Read more: SME investment hampered by business angel myths

“As such, it is a shame that the wider political and economic uncertainties are starting to limit opportunities for businesses at the smaller end of the annual turnover scale.

“Hopefully, once the negotiations have been finalised, we will see a greater uptake in the amount of money that small businesses are accessing as the investment decisions many are delaying can finally be made.”