PEER-TO-PEER business lending and other forms of alternative business finance saw significant growth last year, but an aversion to external finance continues to hold back many small firms, according to the latest research from the British Business Bank (BBB).
The 2018 Small Business Finance Markets report, released on Tuesday, found that P2P business lending rose by 51 per cent in 2017. In contrast, bank lending to UK small- and medium-sized enterprises (SMEs) fell to £700m in 2017 from £3bn the previous year.
“A core objective of the BBB is to encourage greater diversity of finance, so we welcome the growth in the uptake of equity finance and other alternatives to traditional lending,” said chief executive Keith Morgan.
Despite increased demand for alternative finance, the report found that 70 per cent of smaller businesses would rather forego growth than borrow. The BBB’s analysis found that only 1.7 per cent of small firms sought new loans over the last 10 quarters – a record low since its index began in 2011.
Less than half (43 per cent) of businesses surveyed were confident they would get a loan if they applied, even though most new loan applications (72 per cent) are approved.
The BBB highlighted the challenges for UK businesses looking to scale up and called for greater availability of long-term patient capital.
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UK venture capital funds are around one third smaller than the US and UK businesses receive fewer funding rounds than their US counterparts, according to the BBB’s 2017 equity tracker.
In November’s Budget, the government allocated an additional £2.5bn to the British Business Bank in response to the Treasury’s patient capital review, to support UK businesses looking to grow.
“Scale-ups need more long-term patient capital throughout all stages of their development to be world-beating companies, and we look forward to using our new resources allocated at Autumn Budget to unlock more of this type of capital,” said Morgan.
The report also found that smaller businesses with growth potential would benefit from improved information about finance options. The BBB is launching a new digital information hub this year for smaller businesses, to help them find appropriate finance.