Businesses look for alternative funding as lender appetite drops

Instability across the banking sector sparked by the US regional banking crisis has had a direct impact on UK businesses. In the past six months, almost three in ten (29%) UK businesses have faced difficulty sourcing funding, with 9% of businesses stating this has been “very difficult”.

The funding picture does not look set to improve in the near term. With forecasts indicating rates could peak at 5.75% later this year and bond yields at their highest levels since 2008, two in five (40%) businesses believe they will continue to face funding challenges, and almost a third (31%) of UK businesses think there is a risk they will default on their debt in the next 12 months.

With traditional lender appetite suppressed, UK business owners are looking to alternative means of funding to finance their businesses. Of the total capital UK businesses are looking to raise in the next six months, just 12% of this funding will be from traditional banks.

Instead, UK businesses are turning to more alternative means of funding such as credit funds, where 9% of funding is set to be raised in the next six months.

To bolster their capital reserves, businesses are also turning to their assets. The lease back of physical assets is set to raise 10% of total capital in the next six months, while sale of operational assets is expected to raise a similar amount (8%).

Claire Burden, partner at Evelyn Partners, said: “Businesses have weathered an exceptionally challenging winter, in which the cost of funding has soared, consumer confidence has taken a sizeable hit and energy prices have rocketed. Emerging out of these challenging months, it is encouraging that business confidence remains stable, and survival prospects have improved as businesses look ahead over the next year.

“Businesses are not out of the woods just yet, however. Although funding remains in ample supply, banking instability and interest rate rises has led to a buyers’ market. For borrowers and management teams this has resulted in more cumbersome financing processes. Businesses looking to re-finance or take on additional funding should therefore start the process early and enlist the support of specialist advisors to help identify funding options and the providers best aligned to their business needs.”