The importance of lending to the “unaddressed middle”

Jun 5, 2019 Blog  Business Lending



AltFi recently published an article about the UK’s “squeezed middle”.  In the article, it says that even though the term usually refers to the part of the society that is under pressure, it is actually the mid-size businesses that need help.  The UK is not unique in this scenario.

Since the financial crisis, banks have been tightening up their lending practices, which has had an impact on SMEs and their ability to borrow.  According to Bank of England statistics, there has been no appreciable increase in the amount of money UK banks made available to companies to borrow since 2014.  This reluctance in banks lending has had a varying impact on UK corporate financing behaviour.  Large businesses increasingly tapped international bond markets, while start-ups and micro-companies are able to access marketplace lenders and crowdfunding platforms.

This has left a wide range of mid-sized companies with few borrowing options to turn to and it could have a general adverse impact on the economy.

SMEs make up 99.9% of all UK companies, employs 60% of the UK population and contribute 52% of the country’s annual turnover.  Without them, the economy would collapse.  However, to keep them moving, these businesses need capital.

There was an undeniable rise of digital entrants to the lending section over the last few years, such as marketplace lending (P2P) and crowdfunding websites, however these account for a very small proportion of the overall UK loan market.  Lending to UK companies by members of the P2P Financing Association in the last quarter of 2018 amounted to just £527m.  By comparison, in each of the three years to the end of 2017, gross new bank loans average around £58 billion according to City business group UK Finance.

Average loans by digital entrants are around £100 000, which is useful for micro-businesses, but mid-size companies need to look elsewhere.

European Union regulators, through the Captial Markets Union, have moved to reduce SMEs’ reliance on bank lending and encouraged a broader set of institutions to put up capital.  This has resulted in a wide range of asset managers moving to the sector, each concentrating on a slightly different part of the market.  Many of the asset managers believe that the “unaddressed middle” is where the most value can be found.

To read the full article on AltFi, click here.

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