ThinCats, the leading alternative finance provider to mid-sized SMEs, has today published its latest corporate finance adviser sentiment survey which reveals that advisers are seeing lower levels of activity and reduced business pipelines compared to six months ago.
The survey covers experts from across 50 leading UK corporate finance, debt advisory, accountancy and private equity firms.
When asked which factors are constraining demand, advisers cited macro issues (52%), interest rate hikes (36%) and valuation expectations (32%) as the most significant.
In terms of funding activity, 56% of advisers reported lower levels than 6 months ago, 26% reported higher levels and 18% reported no change.
Although only 12% of advisers felt that availability of funding was a constraint to businesses seeking finance, 64% said that less funding was available from banks compared to six months ago. This compares to 28% who felt there was less funding available from non-bank lenders.
Advisers were also asked about their views on likely activity levels in the run up to the next general election. 76% of advisers believed activity would increase driven primarily by business owners’ concerns about changes to capital gains tax and business asset disposal relief should a Labour government be elected. As a result, advisers expect business owners that are looking to exit or reduce their equity holdings to bring forward transactions.
Ravi Anand, Managing Director, ThinCats said, “It’s no real surprise that corporate finance advisers are reporting reduced demand for debt funding given the continuing macro challenges and hikes in interest rates as the Bank of England grapples with lingering high levels of inflation.
“What’s encouraging from the survey is that availability of debt is not seen as a major barrier to securing funding. Whilst the perception is that there is less funding available, particularly from the banks, there seems to be sufficient to meet current demand.
“The trend for non-bank lenders, to be the primary source of SME funding, rather than high street banks, continues as ThinCats recently reported providing a record amount of funding to mid-sized SMEs for the first six months of a year. We also ranked as the top non-bank lender in a recent report covering H1 2023 M&A activity.
“Despite high interest rates, many businesses continue to see opportunities to deliver new income streams which more than cover the higher costs of borrowing.
“Further encouragement can be drawn from recent data indicating inflation rates are now falling, which could mean we are approaching the peak of the current interest rate hike cycle. SMEs that have been delaying their expansion plans may now feel more confident about pursuing M&A deals, especially if more pre-retirement business owners look to exit in advance of the next general election.”