The total value of lending to UK businesses has risen by £12bn to £533bn in the nine months to end May 2022 as banks increase their lending following a sharp fall at the end of the CBILS and BBLS schemes, shows research by ACP Altenburg Advisory (“Altenburg”), the debt advisory specialists.
Altenburg says that the rise follows a £7bn drop in the value of outstanding lending in just two months following the end of Government guaranteed loan schemes in March 2021 (see graph). The 100% Government guarantee under the BBLS scheme meant that the Government would effectively pay for any losses the banks would incur if the borrower defaulted. Under CBILS the Government provided a guarantee covering 80% of each loan.
Altenburg explains that banks took a more cautious approach to lending once the Government guarantees were removed. However, lending activity has begun to rise again since September 2021 despite the ongoing crisis in Ukraine and the impact of higher inflation.
CBILS and BBLS lending had made up the majority of small and medium business lending between April 2020 and May 2021, representing 61% of total lending to SMEs during this period.
Will Senbanjo, Partner at Altenburg, said, “Businesses will be glad to see banks have started increasing lending to UK businesses following the removal of the CBILS and BBLS guarantees.”
“Those Government-backed schemes were vital for keeping the flow of lending going during the pandemic but once they ended, bank funding was harder to obtain for several months.”
“While there are still significant headwinds facing the economy – principally rising interest rates – there is now more bank lending out there for businesses looking to grow or make acquisitions.”
Borrowing is still affordable for most UK businesses despite the recent rise in interest rates, adds Altenburg. While BOE base rate now stands at 1.25%, up from just 0.1% six months ago, they are still low levels in a historical context. Just before the financial crisis in 2008, base rates stood at 5.75%.
With interest rates still being competitive, the opportunity for businesses to make debt-funded acquisitions remains strong.
Senbanjo added, “There are plenty of businesses looking at M&A deals as they seek to grow their business’ overall value and attractiveness to future buyers. For businesses seeking to borrow to achieve this aim, now could be a good time to lock in a low rate on their lending.”
“Not every business will find bank lending is the most suitable choice for them. Some may find borrowing is more easily accessible through debt funds or other non-bank lenders. Whilst these may be at a higher cost than bank funding, the typically higher risk appetite of non-bank lenders may allow a faster pace of growth, which may provide a more profitable overall funding solution for business owners.”