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Commercial Borrowing - UK - November 2015

“Many companies looked to improve their cashflow and become more adaptable to economic shocks following the financial crisis, in order to be better-equipped if or when another crisis occurs. Refinancing became a common tool to achieve this and could help explain why the amount of loans outstanding is in decline.”

– Lewis Cone, B2B Analyst

This report will explore the following key issues regarding commercial borrowing in the UK:

  • What are the key determinants driving commercial borrowing?
  • Was the market affected by the financial crisis? Have there been any structural changes as a consequence?
  • Has regulation restricted industry development?
  • Can alternative lenders make a significant impact? Or are mainstream lenders on the verge of a recovery?
  • What does the future hold for commercial borrowing?

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Table of contents

  1. Executive Summary

      • Market size
        • Figure 1: UK MFIs’ net loans to non-financial businesses, by size of business, Q4 2013-Q3 2015
        • Figure 2: UK MFIs’ gross lending to and repayments made by non-financial businesses, by industrial sector, 2015 to May
      • Market trends
        • Market factors
          • Continued struggles by mainstream lenders to provide finance to SMEs and legislative changes have peaked alternative lenders’ interest
            • Commercial property transactions on the rise
              • Profitability and business investment rising in the private sector
                • Reports of positive business confidence at odds with decline in M&A activity
                  • Industry structure
                    • Forecast
                      • Gross lending expected to gradually improve to 2020
                        • Figure 3: Forecast UK MFIs’ net loans to non-financial businesses, 2016-20
                      • Alternative market expected to more than double its lending over the next five years
                        • Figure 4: Forecast UK alternative lending market, by funding type, 2016-20
                      • Rising number of transactions to drive new commercial mortgage lending
                        • What we think
                        • Key Insights

                            • Can alternate lenders become a substantial market player?
                              • Have bank lending conditions improved or are companies still in the process of refinancing?
                                • Will real estate borrowing continue to dominate the industry?
                                • Introduction

                                    • Definitions
                                      • Methodology
                                        • Abbreviations
                                          • Market positioning
                                          • UK Economy

                                            • Key points
                                              • Overview
                                                • Figure 5: UK GDP, 2004-15
                                                • Figure 6: Quarters after GDP peak, 1979, 1990 and 2008
                                              • Inflation
                                                • Interest rates
                                                  • House prices
                                                    • Consumer spending
                                                      • Manufacturing
                                                        • Business investment
                                                          • Figure 7: UK GFCF 2003-15
                                                        • Imports
                                                          • Exports
                                                          • Market Factors

                                                            • Key points
                                                              • Output growth slows in the first half of 2015
                                                                • Figure 8: GDP growth rate, 2012-15
                                                                • Figure 9: GDP growth rate graph, 2012-15
                                                              • Continued struggles by mainstream lenders to provide finance to SMEs and legislative changes have peaked alternative lenders’ interest
                                                                • Figure 10: Company insolvencies in England and Wales, 2010-14
                                                              • Commercial property transactions on the rise
                                                                • Figure 11: Number of non-residential property transactions, 2010-14
                                                                • Figure 12: Number of non-residential property transactions graph, 2010-14
                                                              • Profitability and business investment rising in the private sector
                                                                • Figure 13: UK PNFCs net rate of return, Q1 2010-Q2 2015
                                                                • Figure 14: UK PNFCs net rate of return, Q1 2010-Q2 2015
                                                                • Figure 15: UK total business investment, 2010-15
                                                                • Figure 16: UK total business investment graph, 2010-15
                                                              • Reports of positive business confidence at odds with decline in M&A activity
                                                                • Figure 17: Mergers and acquisitions of UK companies, 2010-15*
                                                              • Government schemes
                                                                • British Business Bank
                                                                  • Business Finance Support Finder
                                                                    • Enterprise Finance Guarantee
                                                                      • Figure 18: EFG lending, by number and value of loans offered and drawn, 2009-15*
                                                                      • Figure 19: EFG lending, by number of loans offered and drawn, 2009-14
                                                                      • Figure 20: EFG lending, by value of loans offered and drawn, 2009-14
                                                                    • Asset Purchase Facility
                                                                      • Project Merlin
                                                                        • The National Loan Guarantee Scheme
                                                                          • Funding for Lending Scheme
                                                                          • Market Size

                                                                            • Key points
                                                                              • Net lending showing signs of recovery in 2015
                                                                                • Figure 21: UK MFIs’ net loans to non-financial businesses, by size of business, Q4 2013-Q3 2015
                                                                                • Figure 22: UK MFIs’ net loans to non-financial businesses, by size of business, Q4 2013-Q3 2015
                                                                              • Outstanding loan amounts on the decline
                                                                                • Figure 23: UK total loan amounts outstanding to MFIs from non-financial businesses, by size of business, October 2013-September 2015
                                                                                • Figure 24: M4 loan amounts outstanding from PNFCs, October 2013-September 2015
                                                                                • Figure 25: M4 loan amounts outstanding from PNFCs graph, October 2013-September 2015
                                                                              • Market segmentation
                                                                                • Figure 26: UK MFIs’ gross lending to and repayments made by non-financial businesses, by industrial sector, 2013 H1-May 2015
                                                                                • Figure 27: UK MFIs’ gross lending to and repayments made by non-financial businesses, by industrial sector, 2015 to May
                                                                                • Figure 28: Net finance raised by UK businesses, by industrial sector, 2013 and 2014
                                                                              • Further segmentation
                                                                                • Alternative finance
                                                                                  • Peer-to-peer lending and crowdfunding
                                                                                    • Funding Circle dominates P2P business lending market
                                                                                      • Figure 29: P2P business lending volume and market share, by lender, 2015*
                                                                                      • Figure 30: P2P business lending volume, by lender, 2015*
                                                                                    • Manufacturing industries and professional services apply for most P2P business loans
                                                                                      • Figure 31: P2P business borrowers, by industrial sector
                                                                                    • Crowdcube leads crowdfunding market, albeit with only three major competitors
                                                                                      • Figure 32: Crowdfunding volume and market share, by lender, 2015*
                                                                                      • Figure 33: Crowdfunding lending volume, by lender, 2015*
                                                                                    • Bridging finance
                                                                                        • Figure 34: UK bridging loans market value, in aggregated loan balances, 2011-15
                                                                                      • Commercial property (Real Estate) finance
                                                                                        • Smaller providers enjoying success
                                                                                          • Impact of financial crisis still being felt in the sector
                                                                                            • Figure 35: Aggregated value of outstanding debt in loan books secured on UK commercial property, 2011-15
                                                                                            • Figure 36: Aggregated volume of outstanding debt in loan book secured on UK commercial property graph, 2011-15
                                                                                          • Loan originations are on the rise, signalling the start of a possible recovery
                                                                                            • Figure 37: Gross value of annual loan originations, 2011-15
                                                                                          • UK banks and building societies hold largest share of loans
                                                                                            • Figure 38: Value of outstanding loan books secured on uk commercial property, by type of lender, 2014
                                                                                            • Figure 39: Value of outstanding loan books secured on UK commercial property graph, by type of lender
                                                                                          • Offices and retail property still dominate the share of loans allocated, but the industrial and hotel sectors are strengthening their market share
                                                                                            • Figure 40: Allocation of outstanding loans to investment and owner-occupied property, by type of use, 2014
                                                                                            • Figure 41: Allocation of outstanding loans to investment and owner-occupied property graph, by type of use, 2014
                                                                                          • Non-bank lenders taking an increasing proportion of new loans
                                                                                            • Figure 42: Gross value of loan originations, by allocation, 2014
                                                                                          • Loan-to-value ratios rise as investors are seeking riskier, higher returns
                                                                                            • SME finance
                                                                                              • SME funding gap
                                                                                                • Alternative finance offering a new lending route for SMEs
                                                                                                  • London and the South East account for a third of SME lending in Britain
                                                                                                    • Figure 43: SME turnover and lending, by region, September 2014
                                                                                                    • Figure 44: SME lending, by region, September 2014
                                                                                                  • SMEs most in need of finance for cash flow and capital equipment
                                                                                                    • Figure 45: SME lending, by reason, July-October 2014
                                                                                                  • Value of SME loan balances have fluctuated over the last three years
                                                                                                    • Figure 46: Value of SME loan balances, by region, 2012-15*
                                                                                                    • Figure 47: Value of SME loan balances graph, by region, 2012-14
                                                                                                • Market Trends

                                                                                                  • Key points
                                                                                                    • Business confidence has remained positive since 2012 and has influenced borrowing demand
                                                                                                      • Figure 48: Business confidence index, per half-year, 2005-15
                                                                                                      • Figure 49: Business confidence index, per half-year graph, 2005-15
                                                                                                    • Write offs on loans to non-financial companies have fallen since 2011
                                                                                                      • Figure 50: Write offs of Loans to PNFCs from banks and building societies, 2010-15
                                                                                                    • Demand for credit from large corporates rising
                                                                                                      • Figure 51: Availability of corporate credit to PNFCs in the last three months, by business size, Q1 2010-Q3 2015
                                                                                                      • Figure 52: Availability of corporate credit to PNFCs in the last three months graph, by business size, Q1 2010-Q3 2015
                                                                                                      • Figure 53: Demand for corporate credit by PNFCs in the last three months, by business size. Q1 2010-Q3 2015
                                                                                                      • Figure 54: Demand for corporate credit to PNFCs in the last three months graph, by business size, Q1 2010-Q3 2015
                                                                                                    • Rates remain low for commercial lending
                                                                                                      • Figure 55: Average interest rate for UK MFI new advances to PNFCs, at September in 2011-15
                                                                                                    • The Funding for Lending scheme is now focused on small business finance
                                                                                                        • Figure 56: Net loans to UK SMEs from FLS participants, 2014-15
                                                                                                        • Figure 57: Net loans to UK SMEs from FLS participants graph, 2014-15
                                                                                                    • Industry Structure

                                                                                                      • Key points
                                                                                                        • Challenger banks on the rise, but still can’t compete with the existing major groups
                                                                                                          • Alternative finance lenders are making a mark on the industry
                                                                                                            • The number of banks and building societies has remained largely unchanged since 2013
                                                                                                              • Figure 58: Number of banks and building societies operating in the UK, 2013-15
                                                                                                              • Figure 59: Number of banks and building societies operating in the UK, 2015
                                                                                                            • Government scaling back its involvement in the banking sector
                                                                                                              • Figure 60: Cost to UK government of financial interventions in banking sector, July 2015
                                                                                                            • SME lending a key growth target area for mainstream lenders
                                                                                                              • HSBC
                                                                                                                • Barclays
                                                                                                                  • Lloyds Banking Group
                                                                                                                    • RBS Group
                                                                                                                    • Company Profiles

                                                                                                                      • Aldermore Bank

                                                                                                                            • Figure 61: Financial analysis of Aldermore Bank plc, 2010-14
                                                                                                                          • Company outlook
                                                                                                                          • Barclays Plc

                                                                                                                                • Figure 62: Financial analysis of Barclays plc, 2010-14
                                                                                                                              • Company outlook
                                                                                                                              • Clydesdale Bank plc

                                                                                                                                    • Figure 63: Financial analysis of Clydesdale Bank plc, 2010-14
                                                                                                                                  • Company outlook
                                                                                                                                  • Funding Circle

                                                                                                                                        • Figure 64: Financial analysis of Funding Circle, 2010-14
                                                                                                                                      • Company outlook
                                                                                                                                      • GE Capital UK

                                                                                                                                            • Figure 65: Financial analysis of GE Capital Bank Limited, 2010-14
                                                                                                                                            • Figure 66: Financial analysis of GE Capital Invoice Finance Limited, 2009-12
                                                                                                                                          • Company Outlook
                                                                                                                                          • HSBC Bank plc

                                                                                                                                                • Figure 67: Financial analysis of HSBC Bank, 2010-14
                                                                                                                                              • Company outlook
                                                                                                                                              • Lloyds Banking Group

                                                                                                                                                    • Figure 68: Financial analysis of Lloyds Banking Group, 2010-14
                                                                                                                                                  • Company outlook
                                                                                                                                                  • RBS Group

                                                                                                                                                        • Figure 69: Financial analysis of RBS Group, 2010-14
                                                                                                                                                      • Company outlook
                                                                                                                                                      • Santander UK

                                                                                                                                                            • Figure 70: Financial analysis of Santander UK plc, 2010-14
                                                                                                                                                          • Company outlook
                                                                                                                                                          • Shawbrook Bank

                                                                                                                                                                • Figure 71: Financial analysis of Shawbrook, 2010-14
                                                                                                                                                              • Company outlook
                                                                                                                                                                • Figure 72: Profiled companies’ combined turnover, 2010-14
                                                                                                                                                            • Forecast

                                                                                                                                                              • Key points
                                                                                                                                                                • Traditional (Mainstream) Lenders
                                                                                                                                                                  • Gross lending expected to gradually improve to 2020
                                                                                                                                                                    • Figure 73: Forecast UK MFIs’ gross lending to non-financial businesses, 2016-20
                                                                                                                                                                    • Figure 74: Forecast UK MFIs’ net loans to non-financial businesses graph, 2016-20
                                                                                                                                                                  • Loan write-offs anticipated to generally decline over the next five years
                                                                                                                                                                    • Figure 75: Write offs of loans to PNFCs from banks and building societies, 2016-20
                                                                                                                                                                  • Costly ring-fencing requirements may raise fees and restrict credit
                                                                                                                                                                    • Alternative finance
                                                                                                                                                                      • Alternative market expected to more than double lending over the next five years
                                                                                                                                                                        • Figure 76: Forecast UK alternative lending market, by funding type, 2016-20
                                                                                                                                                                        • Figure 77: Forecast UK alternative lending market graph, by funding type, 2016-20
                                                                                                                                                                      • Commercial property (Real Estate) finance
                                                                                                                                                                        • Rising number of transactions to drive new commercial mortgage lending
                                                                                                                                                                          • Figure 78: Forecast gross value of annual loan originations, 2016-20
                                                                                                                                                                          • Figure 79: Forecast gross value of annual loan originations graph, 2016-20
                                                                                                                                                                        • Total value of outstanding loans to stabilise over coming five years
                                                                                                                                                                          • Figure 80: Forecast value of outstanding loans secured on UK commercial property, 2016-20
                                                                                                                                                                          • Figure 81: Forecast value of outstanding loans secured on UK commercial property graph, 2016-20
                                                                                                                                                                      • Further Sources and Contacts

                                                                                                                                                                        • Trade associations
                                                                                                                                                                          • Asset Based Finance Association
                                                                                                                                                                            • British Bankers’ Association
                                                                                                                                                                              • British Private Equity & Venture Capital Association
                                                                                                                                                                                • Finance and Leasing Association
                                                                                                                                                                                  • Loan Market Association
                                                                                                                                                                                    • National Association of Commercial Finance Brokers
                                                                                                                                                                                      • Trade magazines
                                                                                                                                                                                        • Bridging & Commercial
                                                                                                                                                                                          • Commercial Property Monthly
                                                                                                                                                                                            • Credit Today
                                                                                                                                                                                              • The Banker
                                                                                                                                                                                                • Trade exhibitions
                                                                                                                                                                                                  • Business Funding Show
                                                                                                                                                                                                    • NACFB Commercial Finance Expo 2016
                                                                                                                                                                                                      • Credit Summit 2016
                                                                                                                                                                                                        • The 3rd Annual Institutional & Alternative Lending Conference

                                                                                                                                                                                                        Companies Covered

                                                                                                                                                                                                        To learn more about the companies covered in this report please contact us.

                                                                                                                                                                                                        Commercial Borrowing - UK - November 2015

                                                                                                                                                                                                        US $1,333.00 (Excl.Tax)