The hangover from the credit crunch seems to finally be abating. With buoyancy in the UK economy remaining strong, despite external pressures across Europe, financial service organisations are starting to reap the benefits.
As a result, the concept of business lending is beginning to gather positive momentum. Access to funding is regularly lauded as one of the biggest challenges facing British SMEs. However, with increasing economic confidence demonstrating that more opportunities are now emerging, businesses need to be capitalising on these routes. This is not only for their own benefit, but for the economy at large.
According to figures released last month by the EY ITEM Club, British businesses can expect to see a multi-billion pound cash injection over the next four years. This is in many respects a direct result of lending channels becoming more accessible and a flourishing appetite for corporate risk emerging. Whilst this shift should hopefully incentivise business growth and spending – providing we don’t end up with a bottleneck – it’s important that businesses don’t take it for granted.
Ultimately, it all comes down to confidence. Whilst it is always impossible to predict what lies on the horizon, with the amount of money borrowed expected to rise by almost 17% by 2018, the opportunity for business growth is great. To put that rise into context, it equates to an extra £66bn of funding during the period – a significant uplift over the past six years when the corporate borrowing pot fell by £181bn.
So, despite reports that lending to UK businesses is expected to slow this year, these figures will and should continue to instil a greater level of confidence. Certainty after all is critical to successful business planning and prolonged periods of growth, which is essential to driving financial stability.
According to Chris Price, UK head of financial services at EY, the biggest challenge now is how to turn this growth into profitable growth. Whilst he feels there is little doubt that traditional bank lending will find its feet again, he believes the recent lending drought has permanently changed borrowing behaviour. This change has consequently posed a challenge to banks in his view, who will now have to regain market share from the alternative finance providers that have plugged that gap over the past six years.
So what does this mean?
For starters, banks need to be capitalising on an increasing appetite for funding and work with SMEs far more closely. Between 2011 and the first-half of 2014, the number of firms using only bank loans, bank overdrafts or credit cards fell from 29% to 20%. Incentives, improved service and attempts to shift perception will all play a significant role in delivering positive change around this.
There is some good news though, according to the latest findings from Real Business’s FDs’ Satisfaction Survey – run in association with the ICAEW and part of the FDs’ Excellence Awards. The results highlighted that 52% of FDs and CFOs feel that their bank added real value, by giving a score of five on a scale of five to one. In addition, 30.4% awarded a four, with only 6% responding with a negative score. Furthermore, when asked about satisfaction levels around value for money in terms of fees paid, 31% responded by with a score of five, alongside 36% awarding a score of four.
So whilst external threats will always have an impact, we are in a period of positive transition – providing this commitment and willingness continues to move forward.