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Commercial Borrowing - UK - November 2017

“Growth is essential for firms that want to respond to a changing marketplace and maintain their competitive edge, with external funding helping enable this expansion of operations. However, lenders can find it difficult to prove affordability for credit without a significant trading history, driving a trend for new businesses to shun mainstream lending and seek finance from alternative lenders.”

- 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?
  • Have there been any structural changes in the market as a consequence of the financial crisis?
  • 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, Q3 2015 - Q3 2017, by size of business
        • Figure 2: UK total loan amounts outstanding to MFIs from non-financial businesses, July 2017, by industrial sector
      • Market trends
        • Market factors
          • Brexit could lead to significant lending changes
            • Business investment levels fall while profitability stagnates in the private sector
              • Highest number of inward and domestic M&A deals since 2012 with the low value of the pound attracting investors
                • Industry structure
                  • Forecast
                    • Gross lending expected to rise as businesses react to uncertainty and possible further interest rate rises
                      • Figure 3: Forecast UK MFIs’ gross lending to non-financial businesses, 2018-22
                    • Alternative market growth to be driven by P2P
                      • Figure 4: Forecast UK alternative lending market, by funding type, 2018-22
                    • Total value of outstanding debt set to rise alongside short-term market uncertainty
                      • What we think
                      • Key Insights

                          • Can technology help improve finance accessibility?
                            • How will ‘open banking’ change the current lending model?
                            • Introduction

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

                                        • Key points
                                          • Overview
                                            • Figure 5: Forecast GDP development 2017-21
                                            • Figure 6: UK GDP quarterly development, 2007-17
                                          • Inflation
                                            • Interest rates
                                              • House prices
                                                • Figure 7: UK house price changes, 2006-17
                                              • Consumer spending
                                                • Manufacturing
                                                  • Figure 8: UK manufacturing, 2014-17
                                                • Business investment
                                                  • Figure 9: UK GFCF, 2007-17
                                                • Imports
                                                  • Exports
                                                  • Market Factors

                                                    • Key points
                                                      • Annual GDP growth rises in 2016, but challenges await
                                                        • Figure 10: GDP growth rate, Q1 2013- Q2 2017
                                                        • Figure 11: GDP growth rate, Q1 2013 - Q2 2017
                                                      • Brexit could lead to significant lending changes
                                                        • Increase in company insolvencies highlights the current difficult business environment and a possible lack of suitable finance...
                                                            • Figure 12: Company insolvencies in England and Wales, 2012-16
                                                          • ... although commercial property transactions continue to rise
                                                            • Figure 13: Number of non-residential property transactions, 2012-16
                                                            • Figure 14: Number of non-residential property transactions, 2012-16
                                                          • Business investment levels fall while profitability stagnates in the private sector
                                                            • Figure 15: UK PNFCs net rate of return, Q1 2012 - Q1 2017
                                                            • Figure 16: UK PNFCs net rate of return, Q1 2012 - Q1 2017
                                                            • Figure 17: UK total business investment, 2012-16
                                                            • Figure 18: UK total business investment, 2012-16
                                                          • Highest number of inward and domestic M&A deals since 2012, with the low value of the pound attracting investors
                                                            • Figure 19: Mergers and acquisitions of UK companies, 2012-16
                                                          • Nearly half of SMEs have never checked their credit score
                                                            • Government schemes
                                                              • British Business Bank
                                                                • Business Finance Support Finder
                                                                  • Enterprise Finance Guarantee
                                                                      • Figure 20: EFG Lending, by number and value of loans offered and by number and value of loans drawn, 2009-17*
                                                                    • The National Loan Guarantee Scheme
                                                                      • Funding for Lending Scheme
                                                                        • BoE Stress Test
                                                                        • Market Size

                                                                          • Key points
                                                                            • Net lending has remained positive in 2017 to date...
                                                                              • Figure 21: UK MFIs’ net loans to non-financial businesses, Q3 2015 - Q3 2017, by size of business
                                                                              • Figure 22: UK MFIs’ net loans to non-financial businesses, Q3 2015 - Q3 2017, by size of business
                                                                            • ... with outstanding loan amounts remaining on an upwards course
                                                                                • Figure 23: UK total loan amounts outstanding to MFIs from non-financial businesses, October 2015 - September 2017, by size of business
                                                                                • Figure 24: M4 loan amounts outstanding from PNFCs, October 2015 - September 2017
                                                                                • Figure 25: M4 loan amounts outstanding from PNFCs, October 2015 - September 2017
                                                                              • Market segmentation
                                                                                • Figure 26: UK total loan amounts outstanding to MFIs from non-financial businesses, July 2017, by industrial sector
                                                                                • Figure 27: UK total loan amounts outstanding to MFIs from non-financial businesses, July 2017, by industrial sector
                                                                              • Further segmentation
                                                                                • Alternative finance
                                                                                  • Peer-to-peer lending and crowdfunding
                                                                                    • Funding Circle accounts for most lending in the P2P business area
                                                                                      • Figure 28: P2P business lending volume and market share, by lender, 2017*
                                                                                      • Figure 29: P2P business lending volume, by lender, 2017*
                                                                                    • Crowdcube continues to lead crowdfunding market, albeit with only five major competitors
                                                                                      • Figure 30: Crowdfunding volume and market share, by lender, 2017*
                                                                                      • Figure 31: Crowdfunding lending volume, by lender, 2017*
                                                                                    • Accountants could help drive further growth in P2P lending
                                                                                      • Bridging finance
                                                                                          • Figure 32: UK bridging loans market value, in aggregated loan balances, 2013-17
                                                                                        • Commercial property (real estate) finance
                                                                                          • Yields stabilise following weak end to 2016
                                                                                            • Debt falls again following first rise in seven years in 2015
                                                                                              • Figure 33: Aggregated value of outstanding debt in loan books secured on UK commercial property, 2012-16
                                                                                              • Figure 34: Aggregated volume of outstanding debt in loan book secured on UK commercial property, 2012-16
                                                                                            • Loan originations fall as uncertainties derail previous momentum
                                                                                              • Figure 35: Gross value of annual loan originations, 2012-16
                                                                                            • UK banks and building societies’ share of new loan originations rises to four-year high
                                                                                              • Figure 36: Gross value of loan originations, by allocation, 2012-16
                                                                                              • Figure 37: Gross value of loan originations secured on UK commercial property, 2016, by allocation
                                                                                            • SME finance
                                                                                              • SME funding gap
                                                                                                • Improvements still needed to improve alternative finance accessibility
                                                                                                  • London and the South East account for a third of SME lending in Britain
                                                                                                    • Figure 38: SME turnover and lending, by region, at Q2 2017
                                                                                                    • Figure 39: SME lending, by region, at Q2 2017
                                                                                                  • SMEs most in need of finance for working capital and cash flow
                                                                                                    • Figure 40: SME lending, by reason, 2016
                                                                                                  • Value of SME loan balances has declined since 2013
                                                                                                    • Figure 41: Value of SME loan balances, by region, 2013-17*
                                                                                                    • Figure 42: Value of SME loan balances, by region, 2014-16
                                                                                                  • Loan comparison tool launched to help SMEs obtain the best deal
                                                                                                  • Market Trends

                                                                                                    • Key points
                                                                                                      • Business confidence influences borrowing demand, but latest index figures continue to cast doubt
                                                                                                        • Figure 43: Business confidence index, per half-year, 2007-17
                                                                                                        • Figure 44: Business confidence index, per half-year, 2007-17
                                                                                                      • Write offs on loans to non-financial companies fall to seven-year low in 2016, with 2017 set to further decline
                                                                                                        • Figure 45: Write offs of loans to PNFCs from banks and building societies, 2012-17*
                                                                                                      • Credit demand and availability fell in 2016, with similar signs shown in 2017
                                                                                                        • Figure 46: Availability of corporate credit to PNFCs in the last three months, Q4 2011 - Q3 2017, by business size
                                                                                                        • Figure 47: Availability of corporate credit to PNFCs in the last three months, Q4 2011 - Q3 2017, by business size
                                                                                                        • Figure 48: Demand for corporate credit by PNFCs in the last three months, Q4 2011 - Q3 2017, by business size
                                                                                                        • Figure 49: Demand for corporate credit to PNFCs in the last three months, Q4 2011 - Q3 2017, by business size
                                                                                                      • Commercial lending rates continue recent downward trend
                                                                                                        • Figure 50: Average interest rate for UK MFI new advances to PNFCs, at September in 2013-17
                                                                                                        • Figure 51: Average interest rate for UK MFI new advances to PNFCs, at September 2013-17
                                                                                                      • Funding for Lending scheme expected to end in January 2018
                                                                                                      • Industry Structure

                                                                                                        • Key points
                                                                                                          • Industry development
                                                                                                            • Higher number of challenger banks enter the market, but still yet to offer significant threat to the dominant banking groups
                                                                                                              • The number of banks and building societies has remained fairly constant since 2013
                                                                                                                  • Figure 52: Number of banks and building societies operating in the UK, 2013-17
                                                                                                                  • Figure 53: Number of banks and building societies operating in the UK, 2013-17
                                                                                                                • Banks pushing towards more mobile business banking as branch closures continue
                                                                                                                • Company Profiles

                                                                                                                  • Aldermore Bank

                                                                                                                        • Figure 54: Financial analysis of Aldermore Bank plc, 2012-16
                                                                                                                      • Company strategy
                                                                                                                      • Barclays Plc

                                                                                                                            • Figure 55: Financial analysis of Barclays plc, 2012-16
                                                                                                                          • Company strategy
                                                                                                                          • Clydesdale Bank plc

                                                                                                                                • Figure 56: Financial analysis of Clydesdale Bank plc, 2013-17
                                                                                                                              • Company strategy
                                                                                                                              • Funding Circle

                                                                                                                                    • Figure 57: Financial analysis of Funding Circle, 2012-16
                                                                                                                                  • Company strategy
                                                                                                                                  • HSBC Bank plc

                                                                                                                                        • Figure 58: Financial analysis of HSBC Bank, 2012-16
                                                                                                                                      • Company strategy
                                                                                                                                      • Lloyds Banking Group

                                                                                                                                            • Figure 59: Financial analysis of Lloyds Banking Group, 2012-16
                                                                                                                                          • Company strategy
                                                                                                                                          • RBS Group

                                                                                                                                                • Figure 60: Financial analysis of RBS Group, 2012-16
                                                                                                                                              • Company strategy
                                                                                                                                              • Santander UK

                                                                                                                                                    • Figure 61: Financial analysis of Santander UK plc, 2012-16
                                                                                                                                                  • Company strategy
                                                                                                                                                  • Shawbrook Bank

                                                                                                                                                        • Figure 62: Financial analysis of Shawbrook, 2012-16
                                                                                                                                                      • Company strategy
                                                                                                                                                        • Figure 63: Profiled companies’ combined turnover, 2012-16
                                                                                                                                                    • Forecast

                                                                                                                                                      • Key points
                                                                                                                                                        • Ongoing developments in Brexit negotiations will impact market development
                                                                                                                                                          • Traditional (mainstream) lenders
                                                                                                                                                            • Gross lending is expected to rise as businesses react to uncertainty and possible further interest rate rises
                                                                                                                                                                • Figure 64: Forecast UK MFIs’ net loans to non-financial businesses, 2018-22
                                                                                                                                                                • Figure 65: Forecast UK MFIs’ net loans to non-financial businesses, 2018-22
                                                                                                                                                              • Loan write-offs anticipated to rise from 2020
                                                                                                                                                                • Figure 66: Write offs of loans to PNFCs from banks and building societies, 2018-22
                                                                                                                                                              • SME finance
                                                                                                                                                                • Alternative finance
                                                                                                                                                                  • Alternative market growth to be driven by P2P
                                                                                                                                                                    • Figure 67: Forecast UK alternative lending market, by funding type, 2018-22
                                                                                                                                                                    • Figure 68: Forecast UK alternative lending market, by funding type, 2018-22
                                                                                                                                                                  • Commercial property (real estate) finance
                                                                                                                                                                    • Slow growth expected in the commercial mortgage lending sector
                                                                                                                                                                        • Figure 69: Forecast gross value of annual loan originations, 2017-21
                                                                                                                                                                        • Figure 70: Forecast gross value of annual loan originations, 2017-21
                                                                                                                                                                      • Total value of outstanding debt set to rise alongside short-term market uncertainty
                                                                                                                                                                        • Figure 71: Forecast value of outstanding debt in loan books secured on UK commercial property, 2017-21
                                                                                                                                                                        • Figure 72: Forecast value of outstanding debt in loan books secured on UK commercial property, 2017-21
                                                                                                                                                                    • Further Sources and Contacts

                                                                                                                                                                      • Trade associations
                                                                                                                                                                        • British Private Equity & Venture Capital Association
                                                                                                                                                                          • Loan Market Association
                                                                                                                                                                            • National Association of Commercial Finance Brokers
                                                                                                                                                                              • UK Finance
                                                                                                                                                                                • Trade magazines
                                                                                                                                                                                  • Bridging & Commercial
                                                                                                                                                                                    • Commercial Property Monthly
                                                                                                                                                                                      • Credit Strategy
                                                                                                                                                                                        • The Banker
                                                                                                                                                                                          • Trade exhibitions
                                                                                                                                                                                            • Business Funding Show
                                                                                                                                                                                              • NACFB Commercial Finance Expo 2018
                                                                                                                                                                                                • Credit Summit 2018

                                                                                                                                                                                                Commercial Borrowing - UK - November 2017

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