The Bank of England Monetary Policy Committee kept interest rates at 0.75% and predicted a 33% chance of a recession by the first quarter of 2022.
Red Flag Alert’s quarterly report on financial distress highlights the property sector as the biggest struggler – with a 2% quarter-on-quarter increase in those businesses classified as being in significant financial distress.
Looking at a one year time horizon Red Flag Alert shows worrying trends in a number of sectors including:
Worryingly, these sectors all include a large number of SMEs.
Overall, Red Flag Alert report that 14% of businesses are facing significant distress and the average debt is £66,226 – up from £29,872 only three years ago.
Feedback from the Market is Worrying
The FSB’s quarterly Voice of Small Business Index provides insight into business confidence – it points to some worrying trends:
Bibby Financial Services also produce a quarterly SME Confidence Tracker Survey which also reports elements of waning confidence:
The Impact on Raising Capital
The Bibby SME Confidence Tracker reports 21% of businesses feel banks are less willing to lend to them, and whilst there is a 6% increase in businesses seeking finance, four in every ten are using credit cards.
It has been widely reported that the poor performance of peer-to-peer lenders is indicative of an uncertain business climate. Funding Circle recently cut its growth forecast in half, with chief executive Samir Desai explaining: “The uncertain economic environment has reduced demand from small businesses and led us to proactively tighten lending criteria”.
The Funding Circle share price has fallen dramatically from its flat price of 440p to around 113p on the 1st August.
The FSB’s Voice of Small Business Index reports that more firms are finding applications declined:
These figures are stark – a considerably lower number of businesses are being accepted for credit. For the businesses accepted, interest rates are more favourable (47% were offered rates of less than 4% – a 10.3% year-on-year increase in businesses offered the lower rates).
With the combination of more applications for credit being declined and lower rates, it seems lenders are focused on lending to the most stable subset of business – and are willing to offer good rates to secure businesses.
What This Means for Borrowers
With uncertainty set to persist until at least a conclusion on Brexit it seems traditional lenders are going to remain risk averse – especially in light of a likely post-Brexit rise in interest rates.
This is bad news for many borrowers. Every bank will have a different set of lending criteria but with acceptance rates trending downwards it’s more likely that applications with any degree of uncertainty may face rejections. This uncertainty will likely include:
Traditional lenders aren’t renowned for speed but any circumstances that don’t fit lending criteria are likely to take even longer to pass due diligence.
Reparo Finance – A Lender That Listens
At Reparo, we take a different approach to traditional lenders; we look at the specific circumstances of every business rather than apply set lending criteria. This has a number of advantages for borrowers:
We provide loans between £10,000 and £2m. If you need finance but are worried about a lender rejecting your application get in touch for a no obligation conversation to see if we can help. Reach us on firstname.lastname@example.org or 0161 451 5710.