An International comparison of the business lending market
It’s not uncommon for economies to embark on an upward trend following a decisive election win, as this tends to minimise uncertainty and volatility in the market.
This was certainly the case following Boris Johnson’s thumping election win in December, as this helped consumer confidence levels to soar to their highest levels since 2009 in Q1 of 2020.
As yet, however, this has not translated into increased levels of business confidence, with lending in the small business sector (which accounts for 60% of all private sector employment nationwide) experiencing a significant slowdown in demand.
But how does this market compare to the U.S. equivalent, and what options are available to UK firms who are looking for funding in the current economic climate.
Comparing the SME Lending Markets in the UK and the U.S.
There’s no doubt that a contracting economy in the UK and the uncertainty surrounding the region’s future relationship with the EU is having a significant impact on SMEs.
More specifically, it’s creating a scenario where SMEs are either loath or struggling to secure adequate financing, and this provides a stark contrast with the equivalent market in the U.S..
This is borne out in part by the latest earnings data released by the SME lending platform Funding Circle, which noted marked deterioration in its higher-risk small business loan bands in the UK.
In total, the UK-based group recorded a 14% hike in the value of its losses last year, thanks to the aforementioned economic uncertainty and the pronounced volatility of macroeconomic factors. While it stopped short of citing Brexit directly, the combination of sluggish growth and negative sentiment has even halted the brand’s plans to launch in Canada.
Conversely, the company’s U.S. arm recently hit an impressive $2 billion in loan volume during 2019, with both banks and alternative lenders in North America simultaneously reporting an increase in the value of requested funds and the sheer number of applications.
The same institutions in the UK have continued to report a slowdown in funding requests and business investment of late, while also warning that this trend is likely to continue at least until a finite trade deal has been agreed with the remaining 27 EU members.
What Options are Available for Businesses in the UK?
Clearly, there’s a stark contrast with the U.S. market, with SMEs in the UK having progressed from simply delaying investment plans to processing fewer transactions.
At the same time, small businesses in the UK are still struggling to leverage their capital to cover operating expenses, and this also provides a contrast with the market across the Atlantic.
All is not lost for firms in the UK, however, with in excess of £500 million worth of loans thought to have been approved via the domestic lending platform ThinCats. This provides an alternative view of Brexit uncertainty, while it also shows that at least some firms are looking to borrow as a way of coping with the potentially stormy seas ahead.
At the same time, British service providers such as Liberis are continuing to offer competitively priced small business loans to operators that have a bad, inadequate or simply non-existent credit history.
This is creating a level playing field form SMEs throughout the UK, including those who want to borrow in the current climate but may have previously been unable to do so.
It should also be noted that the bank lending rate in the UK (1.75%) is lower than the U.S. alternative (4.75%), and this means that British SMEs can borrow money at a more affordable rate overall.
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