The latest numbers are in for the Funding for Lending Scheme, and they paint a surprisingly upbeat picture of the SME lending scene.
We’ve been tracking FLS numbers since the start of 2014. We set net FLS lending volumes for each quarter against the contributions of the alternative business funding sector, according to the Liberum AltFi Volume Index, providing an insight into the scale of the SME funding gap and into the impact of the alternative finance sector in relation to it. Up to now, the story has been one of ever decreasing FLS numbers and a flourishing but dwarfed alternative lending space.
For Q3 2014, net lending to small businesses by FLS participants fell by £128m, versus a fresh £268m of alternative SME funding. The alternative options produced a bizarrely similar £267.6m in Q4 2014, but against the backdrop of an £800m fall off in FLS funding.
The story for Q1 2015 is rather different.
Net lending to SMEs by FLS participants stood at a positive £0.6bn. This represents a resounding change of direction. Average quarterly net lending figures under the scheme in 2014 were -£0.5bn. The Bank of England suggests that the turnaround may be attributed to a number of mainstream institutions that actively expanded their SME lending in the past quarter.
The Bank of England also pointed to a general improvement in SME credit conditions in recent times. Various contemporary reports and surveys add weight to that assertion. The recent FSB Voice of Small Business Index suggested that the availability of credit for SMEs rose in Q1 2015. The Bank of England’s 2015 Q1 Credit Conditions Survey (CCS) reported that spreads over reference rates for medium-sized companies fell significantly over the quarter.
And let us not forget the contributions of the alternative finance sector. According to AltFi Data, the UK’s peer-to-business lenders provided £338m of capital to UK SMEs during the first 3 months of 2015 – the largest amount to have been contributed by the alternative lending sector to date.
Net lending to SMEs in Q1 2015, factoring in the efforts of both the traditional and alternative sectors, equals £938m – by far and away the largest amount of credit to have been extended to the UK’s small business since we began tracking these figures in Q1 2014.
2014 saw a £1.999bn contraction in the supply of FLS credit to SMEs. Q1’s FLS resurgence in part plugs that gap with £600m, taking the net lending total (since our coverage of the FLS began) to £1.399bn. Factor in also the £1.305bn that has been supplied by alternative finance providers within that same 15 month time span, and the balance is a mere £94m away from hitting zero. From there, one can only hope that it’s onwards and upwards for the nation’s SME sector and its lenders.
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.