SME funding through asset finance up 125% since 2011 while mainstream lending drops 27%

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Annual growth of 12% during 2012/13 meant that leasing and asset finance made its largest contribution to small business funding since before the recession, according to the analysis of data from the National Association of Commercial Finance Brokers (NACFB).

While the value of small business loans from conventional lenders is currently 27% lower than in 2011*, SME funding through leasing and asset finance has grown by 125% in the same period. It now makes up 22% of alternative loans to small businesses, compared with just 7% in 2007/8.

Asset finance provides businesses with an alternative to traditional bank loans in the form of affordable, secure finance to buy equipment, vehicles and other fixed assets – typically using the asset itself as collateral.

Growing awareness of this funding route among the small business community saw £2.3bn of loans secured through NACFB members during 2012/13 and boosted the average number of deals written by 59%. Businesses also enjoyed greater access to leasing and asset finance with 11% more NACFB brokers now active in this area.

The value of peer to peer lending and other new forms of small business finance also grew by 80% in the last year. As businesses struggle to access mainstream funding from risk-averse lenders, this alternative route provided them with £501m worth of loans from NACFB members in 2012/13 – the first time in three years this figure has exceeded half a billion pounds.

Adam Tyler, CEO of the NACFB commented: “Alternative finance is providing life support to the sickly SME market and will be vital to give it extra impetus to boost the economic recovery.  While the property market has been rejuvenated by the Funding for Lending Scheme and Help to Buy – transforming access to loans on residential property – small businesses have been neglected by mainstream lenders. These figures show that alternative options from leasing and asset finance to peer-to-peer lending are increasingly taking up the slack and plugging a vital gap.”

Overall funding for small businesses from NACFB members grew by 17% in 2012/13 with an extra £1.5bn of lending pushing the total to £10.5bn. This is a 64% increase from 2008/9 and the largest NACFB contribution to SME funding in the last five years.

Buy-to-let continued to account for just under a quarter (23%) of SME funding in 2012/13 with NACFB deals worth £2.4bn to small businesses. Commercial mortgages provided another £2.2bn of funding – including 46% more deals as more businesses explored this route – while invoice finance deals contributed £674m.

The choice of alternative finance options for small businesses through the NACFB reached its highest ever point in 2012/13, with its membership now including 96 lenders – the most on record.

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Adam Tyler, CEO of the NACFB continued: “High-street lenders are very selective in granting finance, which is stifling small businesses and slamming the brakes on economic growth, particularly jobs and wages. With no underwriting for their potential losses, high street lenders are still reluctant to support SMEs – leaving many choked of essential funds to make their ambitions a reality.

“SMEs need to be encouraged to seek alternative forms of finance, and the pick-up in lending activity through NACFB members shows a growing awareness and understanding of the available options. The job is far from done, however, and we need a collective effort if the UK is to adequately support entrepreneurship, boost job creation and achieve a full and permanent recovery.”

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