Financing SMEs and Entrepreneurs 2020

49. United Kingdom

Key facts on SME finance

Developments in 2018 showed a marked divide between continued growth in alternative sources of finance and little change in bank lending. The main measures of bank lending to SMEs remained flat in nominal terms: driven, in no small part, by continued economic uncertainty and increasing SME reluctance to use external finance to invest and grow.

The outstanding stock of bank lending to SMEs, the principal component of SME finance markets, continued to decline in real terms. Total stock at GBP 166 billion at year end 2018 was significantly below historic levels against a backdrop of benign credit conditions, increasing credit availability and persistently low interest rates. Gross flows of bank lending in 2018 were little changed on 2017, closely matched by repayments, resulting in a slightly reduced net lending figure of GBP 0.5 billion in 2018.

More positively, outside of bank lending, there was an increase in usage of other types of finance signalling a more diverse funding environment for SMEs. The most commonly used forms of alternative finance, invoice finance (2%) and asset finance (3%), showed continued if slower growth in 2018, whilst the value of equity finance received by SMEs also increased (5%). Moreover, P2P business lending and P2P invoice finance grew apace in 2018, by 18% and 105% respectively, albeit from much smaller 2017 baselines.

On the demand side a range of indicators signalled generally low or declining SME demand for external finance despite conditions remaining broadly accommodative. UK Finance data show deposits held by SMEs rose to a record high in Q4 2018 to almost GBP 195 billion, a 15% increase on the previous year. At the same time there has been a continued reduction in SME usage of overdrafts.

More broadly, just 36% of SMEs reported using any type of external finance in 2018, compared to 44% in 2012. A majority (8 in 10) of SMEs who reported retaining good credit balances said this reduced their need for external finance. A similar percentage of SMEs have growth plans based on what they can afford to self-fund, and almost three quarters report they would accept a slower rate of growth rather than borrow. Overall, a much smaller proportion of SMEs (3%) applied for new and renewed bank facilities in 2018.

Reluctance to use external finance could reflect recent increases in economic uncertainty. Almost 1 in 4 SMEs report political uncertainty and the current economic climate as major obstacles to growth. Despite these concerns, one in two SMEs still aspire to grow over the next 12 months and fewer SMEs are citing access to finance as a major obstacle.

The UK Government, the Department for Business, Energy and Industrial Strategy and the British Business Bank will continue to work with a wide range of partners to promote and encourage SME access to, and take up of, external finance throughout the devolved nations and regions of the United Kingdom. For example, in June 2018 the British Business Bank launched a new website that offers independent and impartial information on different finance options for scale-up, high growth and potential high growth businesses.

On the supply side the British Business Bank has introduced the British Patient Capital programme, to enable long term investment into high growth potential companies across the UK, and further extended the ENABLE Guarantee programme to provide funding to banks supporting smaller housebuilders to access external finance.

Table 49.1. Scoreboard for the United Kingdom

Indicator	Unit	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018
Debt
Outstanding business loans, SMEs	GBP billion	..	..	..	189	176	166	167	164	166	165	166
Outstanding business loans, total	GBP billion	..	..	..	504	472	448	435	430	449	466	467
Share of SME outstanding loans	% of total outstanding business loans	..	..	..	37.5	37.3	37.1	38.4	38.3	36.9	35.5	34.8
New business lending, total	GBP billion	..	..	..	..	146	163	190	205	234	259	273
New business lending, SMEs	GBP billion	..	..	..		38	43	53	58	59	57	58
Share of new SME lending	% of total new lending	..	..	..		26.1	26.4	28.2	28.2	25.3	22.2	21.1
Government loan guarantees, SMEs	GBP million	..	61	52	32	43	51	45	34	31	32	30
Government guaranteed loans, SMEs	GBP million	..	626	529	326	288	337	298	226	207	216	199
Direct government loans, SMEs	GBP million	..	..	..	..	0.8	60.6	70.7	62.0	82.6	106.8	85.5
Interest rate, SMEs	%	4.54	3.47	3.49	3.52	3.71	3.60	3.43	3.33	3.22	3.16	3.44
Interest rate, large firms / PNFCs *	%	3.49	2.35	2.10	2.25	2.41	2.20	2.45	2.11	2.60	2.43	2.70
Interest rate spread	% points	1.05	1.12	1.39	1.27	1.30	1.40	0.98	1.22	0.62	0.73	0.74
Collateral, SMEs	% of SMEs needing collateral to obtain bank lending	..	..	..	25	31	31	34	40	45	56	41
Percentage of SME loan applications	SME loan applications/ total number of SMEs	..	..	..	7	6	4	5	4	3	2	2
Rejection rate	1-(SME loans authorised/ requested)	..	..	..	..	31	32	23	18	19	20	17
Non-bank finance
Venture and growth capital	GBP billion	..	..	..	1.9	1.6	1.6	2.2	2.4	2.7	4.2	4.2
Venture and growth capital (growth rate)	%, Year-on-year growth rate	..	..	..		-16.8	-0.6	40.5	9.9	8.6	57.0	0.5
Leasing and hire purchases	GBP billion	..	..	..	11.4	12.2	12.9	14.4	15.8	16.7	18.3	18.8
Factoring and invoice discounting	GBP billion	..	..	..	9.4	9.5	9.9	11.1	10.6	10.8	11.8	12.0
Other indicators
Bankruptcies, SMEs	Thousands	..	..	..	22.3	21.4	20.0	17.6	15.9	17.9	18.5	18.7
Bankruptcies, SMEs (growth rate)	%, Year-on-year growth rate	..	..	..	..	-3.9	-11.6	-6.9	-9.8	12.1	3.6	1.4

Note: * Break in data series and definition from 2016.

Source: see Table 49.17.

SMEs in the national economy

There were 5.7 million private sector businesses in the United Kingdom at the start of 2018 according to business population estimates from the Department for Business, Energy and Industrial Strategy (BEIS). Year on year growth in the total number of businesses stalled in this most recent year, due to a 0.5% reduction in the 4.3 million firms with no employees. These zero employee firms comprise approximately 76% of private sector businesses, generate 17% of employment and contribute 7% of turnover in the private sector economy.

In contrast, the number of firms with employees increased in 2018. The annual rate of growth was highest amongst large firms with 250 or more employees (4.2%) and medium-sized firms employing between 50 and 249 employees (2.7%). Whilst growth amongst firms with between 1 and 9 employees, was somewhat lower at 1.7%, these micro firms comprise 82% of all employers in the private sector economy.1

Figure 49.1. Number and percentage annual increase in SME employers by size of firm (headcount) in the United Kingdom

Number of firms, thousands 2018 (LHS), percentage change 2017-18 (RHS)

Source: BEIS, Business Population Estimates 2018.

Statlink

The contribution of employing firms to the stock of private sector firms, employment and turnover also varies substantially by size of employer (headcount). In general terms, the ratio of employment and turnover per firm increases the larger the firm’s workforce. Micro firms (1-9 employees) comprise 20% of private sector firms, 15% of employment and 14% of turnover whilst large firms (250 or more employees) comprise just 0.2% of firms yet contribute 40% of employment and 48% of turnover in the private sector.2

Figure 49.2. Percentage share of firms, employment and turnover amongst SME employers in the United Kingdom

Percentage share of firms, employment and turnover 2018

Source: BEIS, Business Population Estimates 2018.StatLink 2 https://stat.link/

Statlink

SME lending

The outstanding stock of bank lending to SMEs, the principal component of SME finance markets, has remained flat in nominal terms in recent years. The Bank of England (BoE) reported a total of GBP 166 billion in Q4 2018, albeit rising to GBP 168 billion by Q2 2019, and remains somewhat higher than the GBP 161 billion reported in Q1 2016 - the lowest reported level since the data series began in 2011. However, the percentage share of bank lending to SMEs (i.e. as a proportion of total lending to private sector non-financial services firms) has declined to just under 35% due to the much more consistent upward trend in the stock of lending to large businesses since 2015.3

Figure 49.3. Stock of lending to SMEs and large businesses, and percentage SME share, in the United Kingdom

Quarterly stock of lending, GBP billion (LHS), percentage SME share of total lending (RHS)

Source: Bank of England Statistics, 2019.

Statlink

Gross flows of bank lending have averaged GBP 58 billion per annum over the four years since 2015. More detailed analysis shows some variation by quarter although the yearly totals for both 2017 and 2018 were lower than the year-end number in 2016. Moreover, the supply of gross new lending to SMEs contrasts sharply with much stronger flows of lending to large businesses over this latest four-year period, falling as a percentage share of 28% of total lending to private sector non-financial services firms in 2015 to just 21% by end-2018. UK business confidence and investment intentions remained weak in the first half of 2019, as witnessed by the falling level of new gross lending to SMEs, and especially large firms, resulting in an uptick in the percentage share of lending to SMEs.4

Figure 49.4. Gross lending flows to SMEs and large businesses, and percentage SME share, in the United Kingdom

Quarterly flow of gross lending GBP billion (LHS), percentage SME share of total lending (RHS)

Source: Bank of England Statistics, 2019.

Statlink

Average quarterly bank lending to SMEs (new loans, excluding overdrafts) at GBP 14.4 billion was closely matched by repayments of GBP 14.3 billion throughout 2018. This highest recorded annual value of repayments, alongside subdued lending, resulted in a marginally positive annual net flow in lending of GBP 0.5 billion by end-2018, slightly down on 2017. The decline in gross repayments outpaced that of gross lending in the first half of 2019, resulting in a net flow of GBP 1.5 billion in lending to SMEs by the end of H1 2019.5

Underlying these trends over the last two years are relatively weak levels of business investment, falling by 0.4% between 2017 and 2018 according to the Office for National Statistics (ONS). The quarter-on-quarter fall in business investment in Q4 2018 was not only the fourth consecutive fall but also the largest quarterly reduction over the last two years. This contrasts with growth of 1.5% in 2017.6 British Business Bank intelligence suggests ongoing political and economic uncertainty has weakened investment intentions and driven precautionary and short-term borrowing. SME demand for external finance, despite conditions remaining broadly accommodative, has remained low, partly as a result of SMEs paying down debt, by managing working capital, stabilising cash flow and safeguarding business finances ahead of potential future challenges.

Figure 49.5. Gross lending, gross repayments and net lending to SMEs in the United Kingdom

Quarterly gross lending and repayments GBP billion (LHS), quarterly net lending GBP million (RHS)

Source: Bank of England Statistics, 2019.

Statlink

UK Finance data show there has been an upward trend in the value of deposits held by SMEs whilst, conversely, the value of overdrafts used by SMEs has declined. The total value of deposits held by SMEs in December 2018 reached almost GBP 195 billion, a 15% increase on the previous year. Over the medium term, the value of deposits held by small and medium sized firms increased by 63% and 49%, respectively between Q4 2012 and Q4 2018. Meanwhile, the average value of overdrafts used fell by 29% and 19%, respectively, over the same period.7 Almost one quarter (23%) of SMEs held more than GBP 10 000 in credit balances in 2018, significantly higher than the 16% reported in 2012. There is evidence of a link between holding large credit balances and lower demand for external finance: eight in every ten SMEs holding deposits of GBP 10 000 or more reported a reduced need for external finance, a proportion that has remained stable since 2015. Overall, three in ten (29%) of all SMEs surveyed in 2018 reported a reduced need for external finance either due to holding credit balances or receiving trade credit.8 Despite SME concerns and precautionary measures, mentioned above, one in two SMEs still aspire to grow over the next 12 months.9

Figure 49.6. Business deposits held, and business overdrafts used, by SMEs in the United Kingdom

Business deposits, GBP billion (LHS), business overdrafts, GBP billion (RHS)

Source: UK Finance Statistics, 2019.

Statlink

Demand side surveys demonstrate the extent to which SME demand for external finance in the UK has consistently declined over the medium term to 2018. In overall terms, just 36% of SMEs reported they were currently using external finance in 2018, eight percentage points below the reported level in 2012 (44%). Whilst demand for core bank products has remained relatively stable, especially over the last three years, there has been a puzzling reduction in the percentage of SMEs reporting the use of external finance other than core bank facilities this year. The 12% of SMEs reporting use of other forms of finance in 2018 contrasts starkly with the much higher levels of reported usage every year since 2012.10

Table 49.2. Percentage of SMEs using core bank facilities and other finance in the United Kingdom

All data as at year end, Q1-Q4, demand side survey, percentage of all SMEs

Year	2012	2013	2014	2015	2016	2017	2018
Core products (any)	36	32	29	29	31	31	32
- Bank overdraft	22	18	16	16	16	18	19
- Credit cards	18	18	15	16	17	16	14
- Bank loan/commercial mortgage	10	8	7	7	7	6	9
Other forms of finance (any)	18	18	17	17	16	18	12
- Leasing/hire purchase/vehicle finance	6	8	7	7	7	9	7
- Loans/equity/directors/family/friends (1)	6	9	8	8	6	5	4
- Invoice finance	3	2	3	2	3	3	1
- Grants	1	1	2	2	2	2	1
Any (external) finance	44	41	37	37	37	38	36

Note: (1) The wording for these forms of finance changed substantially over time, estimates are for combined options.

Source: BVA BDRC, SME Finance Monitor, Q4 Report 2018, p. 100.

There has been a consistent downward trend in the proportion of SMEs applying for bank facilities, with the share of SMEs making either a new or renewed application for a bank loan or overdraft decreasing to 3% from 8% in 2015. The latest fall has been driven by a reduction in the share of businesses applying for renewed facilities. Overall, noting that some SMEs may make more than one application, the combined proportion of SMEs applying for new and renewed facilities at is now around one quarter the level reported in 2011.11

Table 49.3. Percentage of SMEs applying for loans or overdrafts (1) in the United Kingdom

Percentages, all data as at year end, Q1-Q4, demand side survey

Year	2011	2012	2013	2014	2015	2016	2017	2018
% applied for new facility	7	6	4	5	4	3	2	2
% renewed facility	7	5	4	4	4	3	2	1
% applied new facility/renewal	12	11	8	8	8	5	4	3

Note: (1) Applications for any new/renewed facility (loan/overdraft) in previous 12 months, estimated annual average in each year, Q1-Q4. Applications for new and renewed facilities are not necessarily mutually exclusive (i.e. SMEs can apply for a new and renewed facility in same year) but slight variations are probably due to rounding issues. Questionnaire changes over the 2018 period may cause slight variation in the applications data.

Source: BVA BDRC SME Finance Monitor, Q4 Reports, 2012-2017, and BBB calculations for Q4 2018.

The percentage of SMEs happy to use finance to support business growth has declined substantially from almost half (45%) 2015 to around a third (32%) in H2 2018. Approximately 80% of SMEs report having growth plans based on what they can afford to self-fund, whilst there has been a slight increase to approximately 72% of SMEs stating they would accept a slower rate of growth rather than borrow.12

Table 49.4. SME attitudes to finance in the United Kingdom

Data as at end of each half year, Q1-Q2 and Q3-Q4, demand side survey, percentage of all SMEs.

Year % of SMEs that report	2015		2016		2017		2018
	H1	H2	H1	H2	H1	H2	H1	H2
Happy to use finance to help business grow	45	45	43	43	33	34	33	32
Plans based on what can afford (to self-fund)	-	-	80	80	82	82	79	81
Accept slower growth rather than borrow	-	-	71	70	70	70	73	72

Source: SME Finance Monitor, Q4 2018 Report, p. 107.

The combined rejection rate for SME loans and overdrafts overall in 2018 at 17% is more consistent with the medium term downward trend observed between 2013 and 2016. SME applications for loans were more than twice as likely to be unsuccessful as requests for overdrafts. On aggregate, applications for new money (loans and overdrafts) were substantially more likely to be unsuccessful (26%) than for renewed facilities (3%) in 2018: however, the likelihood of success with new applications currently is much improved on the period 2012 to 2013.13

Table 49.5. Percent rejection rates (1) for SME loan and overdraft applications in the United Kingdom

All data for previous 18 months, annual average at year-end, demand side survey, percentage of all SMEs

Year	2012	2013	2014	2015	2016	2017	2018
% rate all applications	31	32	23	18	19	20	17
% rate all new applications	46	51	35	30	31	37	26
% rate renewals	6	4	3	0	1	3	3
% rate all overdrafts	26	26	17	14	16	15	11
% rate all loans	41	42	34	26	26	33	29

Note: : (1) 1-% of all SMEs that are successful in raising a loan or overdraft in a borrowing event in previous 18 months, estimated annual average over Q1-Q4 in each year (BBB would normally report these as unsuccessful applications).

Source: SME Finance Monitor, Q4 Reports, 2012-2017 and BBB estimates for 2018.

Most recent data from the SME Finance Monitor suggests the percentage of secured bank loans to SMEs has fallen to 41%, fourteen percentage points lower than reported in 2017, and a very similar level to that reported in 2015. However, a change in questionnaire design from Q1 2018 onwards, alongside a reduced number of business loan applications, would need to be taken into account when interpreting this most recent number.14

Table 49.6. Percent secured business loans to SMEs in the United Kingdom

All data as at year-end, demand side survey, percentage of all SMEs

Year	2011	2012	2013	2014	2015	2016	2017	2018
% secured business loans	25	31	31	34	40	45	55	41

Note: business loans, 2011 and 2012 Q1-Q4; 2013 onwards all data in Q4 in each year for borrowing events in previous 18 months.

Source: SME Finance Monitor, Q4 Reports, 2012-2017 for historic data, and Q4 2018 report p. 205.

Credit conditions

There is considerable consensus across supply and demand side reports that credit conditions remained broadly accommodative in 2018, as a whole, despite some signs of tightening in the first two quarters of the year. The Bank of England’s (BoE) Credit Conditions survey, reporting the views of lenders, concluded that credit availability to SMEs was little changed in Q4 following large net increases in Q2 and Q3 2018, whilst there was a fall in the demand of small businesses for corporate lending for the second consecutive quarter by year-end 2018. The discussion of supply and demand side data for SME finance markets indicates a continuing decrease in the demand for finance as opposed to shrinking supply.15 This is borne out by the BoE Agents’ summary of business conditions for Q4 2018, which reported that demand for credit by all firms (including SMEs) continued to soften, reflecting subdued investment intentions, and a slowdown in refinancing. The summary also highlighted a general reluctance to increase borrowing, due to uncertainty about the economic outlook.16 BoE data also indicate that credit is still affordable by historical standards, but interest rates on a range of SME loans have increased somewhat since the start of the year.17 The FSB’s Voice of Small Business survey for Q4 2018 reported that the credit availability index rose for the first time in a year to its highest level since it was introduced in 2012.18

According to most recent BoE data, the annual average interest rate for SMEs ticked up from 3.16 in 2017 to 3.44 in 2018, 74 basis points above the rate of 2.70 for non financial private corporations (NFPCs). The average interest rate to SMEs has remained stable in H1 2019 at 3.44, whilst that for NFPCs has fallen slightly in recent months to 2.63 increasing the spread to 82 basis points.19

Figure 49.7. Interest rates on lending to SMEs and non-financial private corporations in the United Kingdom

Monthly average interest rates to SMEs and PNFCs

Source: Bank of England Statistics, 2019.

Statlink

Alternative sources of SME financing

New data from the Finance and Leasing Association confirm that new asset finance (leasing and hire purchase) taken up by SMEs increased by just under 3% on the total for 2017, to around GBP 18.8 billion by the end of 2018. The GBP 0.5 billion increase in 2018 represents a slower year on year growth rate than historically and significantly below the almost 10% annual increase between 2016 and 2017.20

Table 49.7. Asset finance (leasing and hire purchase) take up by SMEs in the United Kingdom

In GBP billion

Year	2011	2012	2013	2014	2015	2016	2017	2018
Total lending to SMEs	11.4	12.2	12.9	14.4	15.8	16.7	18.3	18.8

Source: Finance & Leasing Association (FLA).

Total advances of invoice finance and asset-based lending (factoring and invoice discounting) to SMEs grew by a little under 2% to GBP 12 billion between 2017 and 2018, which is also a much more subdued rate of increase compared to that recorded in the previous year. However, given a very similar percentage increase in advances to businesses overall, the percentage share of advances to SMEs remained unchanged at 54% of the total advanced to all firms in the UK.21

Table 49.8. Stock of invoice finance and asset-based lending in the United Kingdom

In GBP billion, percentage share of SME lending

Year	2011	2012	2013	2014	2015	2016	2017	2018
Lending to SMEs*	9 .4	9.5	9.9	11.1	10.6	10.8	11.8	12.0
% SME share of total	65	62	59	60	57	55	54	54
Total advances to businesses	14.3	15.3	16.7	18.4	18.5	19.6	21.7	22.1

Note: * Clients with turnover below GBP 50 million, yearly figures as at Q4.

Source: UK Finance data and British Business Bank calculations

Invest Europe / EDC data show the total value of UK venture and growth capital investments grew by a very modest 0.5% to reach almost GBP 4.2 billion between 2017 and 2018. Growth capital increased in value by 10.5% to exceed GBP 2.5 billion in this same period, driven by an increase in start-up funding whilst seed and later stage venture capital recorded a fall of -15% and -35% respectively. The average value of reported investments increased slightly to GBP 4.3 million in 2018.22

Table 49.9. Venture and growth capital investment in the United Kingdom

By stage of development, in GBP million

Year	2011	2012	2013	2014	2015	2016	2017	2018
Seed	23	8	8	15	63	45	136	115
Start-up	266	363	328	343	394	427	886	976
Later stage venture	408	222	185	306	324	262	832	541
Total venture *	696	594	521	663	781	734	1 854	1 632
Growth capital	1 209	995	1 061	1 553	1 663	1 917	2 305	2 548
Average value **	2.4	1.9	2.1	2.7	2.9	3.3	4.2	4.3
Number of companies	785	830	756	831	837	796	989	963
Total investment *	1 906	1 589	1 582	2 216	2 444	2 651	4 160	4 180

Note: * Values for total venture and total investment may not sum due to rounding ** average per company

Source: Invest Europe / EDC.

British Business Bank analysis of Beauhurst data covering UK equity finance markets provides an alternative viewpoint, showing total investment increased by over 5% between 2017 and 2018 to reach a total of GBP 6.7 billion. The increase in overall value was driven by a continuing trend of larger deal sizes, over a broader range of deals compared to 2017, although there were fewer and smaller mega deals in 2018 compared to previous years. Investment ticked up across all three business stages, but the number of individual deals fell by 6%. Overall market conditions suggest a maturing marketplace, buoyant pipeline and continuing success amongst firms that have benefited from previous funding rounds. An encouraging feature of these most recent data was the increase in value of equity finance investment outside of London, which ticked up by 29% to stand at GBP 2.8 billion in 2018.23

Table 49.10. Private external equity investment in the United Kingdom

Number of deals, value in GBP million

Year	2011	2012	2013	2014	2015	2016	2017	2018
Number of deals	490	740	1 012	1 407	1 562	1 524	1 711	1 603
Mean average deal size *	3.5	2.8	2.1	2.3	2.9	2.7	4.0	4.5
Total investment	1 526	1 849	1 862	2 942	4 154	3 870	6 369	6 675

Note: * average of disclosed investment amounts only.

Source: British Business Bank analysis of Beauhurst data.

Marketplace lending describes the principally online market mechanisms intermediating between lenders and borrowers. Gross flows of lending continue to exhibit strong growth rates compared to other forms of external finance - albeit from a lower base. There are a range of marketplace characteristics and dynamics with some platforms charging the borrower a fee for origination and/or ongoing servicing of loans. Growth in the marketplace is driven by a high rate of increase in low value lending funded by investors spreading their total investment across a portfolio of multiple loans and platforms.24

Gross flows of peer-to-peer (P2P) business lending exceeded GBP 2.3 billion in 2018, an increase of 18% on 2017. Whilst significantly lower than the growth rate recorded in the previous year, the slowdown partly reflects a maturing and increasingly important marketplace. Indeed, P2P business lending in 2018 represented the equivalent of 4% of gross bank lending to SMEs. In contrast, albeit from a much lower base in 2017, marketplace facilitated lending against invoices (receivables) grew by 105% to reach GBP 1.1 billion in 2018.

Overall, the market for debt-based marketplace lending in the UK continues to grow and, according to the Cambridge Centre for Alternative Finance, the UK is the third largest market globally and comprises around three quarters of the total value of the European marketplace.25

Table 49.11. Peer-to-peer business lending and invoice finance in the United Kingdom

Year	2012	2013	2014	2015	2016	2017	2018
P2P Business Lending	0.06	0.20	0.41	0.90	1.38	1.97	2.33
P2P Invoice Finance	0.03	0.09	0.21	0.25	0.31	0.54	1.10

Note: Numbers obtained directly from Brismo, to end December 2018, and do not represent the entire market.

Source: Brismo.

One in three SMEs (34%) report receiving trade credit in 2018, confirming its importance as a source of short-term finance for small and medium-sized firms. The purchase of products and services on credit increases in line with size of firm (headcount). The proportion of firms reporting the receipt of trade credit rises from one in two micro firms (48%) to two in three medium-sized businesses (67%), reaffirming its importance in helping sustain business to business trade, healthy cashflow and SME liquidity.26

Table 49.12. Percent of SMEs using trade credit in the United Kingdom

Percentage of SMEs, by headcount, demand side survey

Year	2014	2015	2016	2017	2018
All Firms (including zero employees)	31	33	33	35	34
Zero employee firms	26	28	28	29	29
Micro firms (1-9 employees)	45	47	45	49	48
Small firms (10-49 employees)	58	61	59	64	62

Source: SME Finance Monitor, Q4 2018.

Other indicators

The percentage of SMEs reporting access to finance as a major obstacle to business operations consistently reduced between 2012 and 2015, remaining stable at 5% over the three years up to 2018. Conversely, there has been an increase in SMEs reporting cash flow and issues with late payment over the last three years.27

Table 49.13. Percent of SMEs reporting finance related issues as a major obstacle in the United Kingdom

Percentage of SMEs, by headcount, demand side survey

Year	2012	2013	2014	2015	2016	2017	2018
Cash flow / issues with late payment	13	11	9	9	7	9	13
Access to external finance	11	10	7	6	5	5	5

Note: SMEs providing an impact score between 8-10 out of 10.

Source: SME Finance Monitor, Q4 2018.

The number of insolvencies in the United Kingdom rose slightly to 18 733 in 2018, a 1.4% increase on 2017. The estimated insolvency rate for the UK is 0.5%, based on the 3.7 million business registered with Companies House.28

Table 49.14. Insolvencies in the United Kingdom

Number, not seasonally adjusted

Year	2010	2011	2012	2013	2014	2015	2016	2017	2018
Business insolvencies	21 463	22 304	21 444	18 961	17 646	15 921	17 849	18 483	18 733

Note: The method for estimating insolvencies was revised in January 2018.

Source: Insolvency Service, Companies House.

Government policy response

The British Business Bank was established as a national development bank by the UK government in November 2014. The mission of the Bank is to make finance markets for smaller businesses work more effectively, allowing those businesses to prosper, grow and build UK economic activity. As at March 2019, British Business Bank programmes had supported funding of more than GBP 6.6 billion of finance to over 89 000 smaller businesses. These programmes are designed to bring benefits to businesses that are start-ups, businesses with high growth potential that are looking to scale up, and those looking to stay ahead in their market.

As well as work to increase the availability of finance available for SMEs in the UK, the British Business Bank is delivering resources to support SME awareness of their finance options. In June 2018 the Bank launched a new website that offers independent and impartial information on different finance options for scale-up, high growth and potential high growth businesses. The Bank also publishes a Finance Guide, which sets out the different sources of finance available to businesses and is especially aimed at smaller and early-stage start-up businesses.

British Business Bank has put in place a variety of funds and programmes to increase the provision of both debt and equity finance to smaller businesses. One such programme is the recently launched ENABLE Build Programme, which supports smaller housebuilder finance in the UK. ENABLE Build is a new variant of the Bank’s existing ENABLE Guarantee. This extension of the programme will allow the Bank to expand further its support to banks targeting smaller housebuilders that have traditionally struggled to access the finance they need.

The ENABLE Build programme is designed to encourage additional lending to smaller housebuilders by reducing the amount of capital required to be held against such lending by banks. Under both the ENABLE Guarantee and ENABLE Build programmes, the UK Government takes on a portion of the lender’s risk on a portfolio of loans to smaller businesses, in return for a fee. In this new development, up to GBP 1 billion of guarantees will be made available to support finance for smaller housebuilders.

The British Business Bank continues to support the provision of debt finance to SMEs through a variety of programmes including delivery of the Enterprise Finance Guarantee scheme. This policy initiative is designed to intervene where SMEs are otherwise unable to secure (bank) finance, with the expectation that its use will decline as bank loan approvals increase.

From commencement of the programme in 2009 to December 2018, 30 353 loans with a total value of GBP 3.25 billion have been drawn down, an average percentage utilisation rate, based on the volume of loans offered and drawn, of 86%. There has been a general downward trend in the volume of loans offered and drawn down since the peak in 2013, an expected consequence of improving credit conditions, although average loan values have generally increased year on year to GBP 122 000 by 2018.29

Table 49.15. Enterprise Finance Guarantee Loans offered and drawn in the United Kingdom

In GBP million

Year	2011	2012	2013	2014	2015	2016	2017	2018
Number of loans offered	3 602	3 173	3 741	3 029	2 159	2 021	2 097	1 864
Value of loans offered	362.1	337.6	408.0	349.3	263.2	243.6	255.3	232.6
Number of loans drawn	3 311	2 716	3 162	2 672	1 837	1 730	1 804	1 631
Value of loans drawn	325.8	288.3	337.3	297.7	226.5	206.9	216.3	199.3
% Loans drawn/offered	92	86	85	88	85	86	85	86
Value of Enterprise Finance Guarantee	31.8	43.2	50.6	44.7	34.0	31.0	32.4	29.9

Source: British Business Bank.

Following the Patient Capital Review, the British Business Bank has introduced British Patient Capital programme, designed to enable long-term investment into high growth potential companies across the UK. This GBP 2.5 billion programme will invest alongside the private sector to support total investments of GBP 7.5 billion into British businesses.

HM Revenue & Customs (HMRC) data shows 3 920 companies raised a total of GBP 1.9 billion of funds under the Enterprise Investment Scheme (EIS) in 2017-18. Since the EIS was launched, 29 770 companies have received investment and over GBP 20 billion of funds raised (noting that companies can raise funds in more than one year). The number of raises and value of investment increased by 7.3% and 1.5% respectively on 2016-17, although these are likely to increase as more returns are received.

Since the Seed Enterprise Investment Scheme (SEIS) was launched in 2012-13, 12 900 companies have received investment and over GBP I billion of funds have been raised. SEIS recorded 2 320 companies raising total investment of GBP 189 million; the number of raises falling by 4.3% and the value of funds increasing by 1.1% on the previous year. As with EIS, these numbers are provisional and likely to be revised upwards as more returns are received.30 Based upon historic revisions of the data, the consistently increasing numbers of raises and value of funding confirm the continued importance of business angel funding to smaller UK companies.31

Table 49.16. EIS and SEIS investments in the United Kingdom

Number of raises and value, GBP million

Year		2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18
Enterprise Investment Scheme (EIS)	Number of raises	2 680	2 475	2 845	3 380	3 545	3 655	3 920
	Average value *	0.4	0.4	0.6	0.6	0.6	0.5	0.5
	Total investment	1 034	1 034	1 592	1 930	1 976	1 901	1 929
Seed Enterprise Investment Scheme (SEIS)	Number of raises		1 175	2 140	2 400	2 440	2 425	2 320
	Average value *		0.1	0.1	0.1	0.1	0.1	0.1
	Total investment		87	174	182	184	187	189

Note: * Per raise.

Source: HM Revenue & Customs (HMRC).

Figure 49.8. Trends in SME and entrepreneurship finance in the United Kingdom

Source: British Business Bank for figures A and F, Brismo for Figure B, Finance and Leasing Association and UK Finance for Figure C, Invest Europe / EDC data for Figure D and British Business Bank analysis of Beauhurst data for Figure E.

Statlink

Table 49.17. Sources and definitions for the United Kingdom’s Scoreboard

Indicator	Definition	Source
Debt
Outstanding business loans, SMEs	Quarterly amounts outstanding of monetary financial institutions' sterling and all foreign currency loans to small and medium sized enterprises (in sterling) not seasonally adjusted RPQZ8YH	Bank of England, RPQZ8YH
Outstanding business loans, total	Quarterly amounts outstanding of monetary financial institutions' sterling and all foreign currency loans to all non-financial businesses (in sterling) not seasonally adjusted RPQZ8YJ	Bank of England, RPQZ8YJ
Share of SME outstanding loans	SME total divided by all firms’ total	Bank of England, RPQZ8YH / RPQZ8YJ
New business lending, total	Quarterly sterling and all foreign currency gross lending (excluding overdrafts) to all non-financial businesses (in sterling) by monetary financial institutions, not seasonally adjusted RPQZ8Y4	Bank of England, RPQZ8Y4
New business lending, SMEs	Quarterly sterling and all foreign currency gross lending (excluding overdrafts) to small and medium-sized enterprises (in sterling) by monetary financial institutions, not seasonally adjusted RPQZ8Y2	Bank of England, RPQZ8Y2
Share of new SME lending	SME total divided by all firms’ total	Bank of England, RPQZ8Y2 / RPQZ8Y4
Interest rate, SMEs	Monthly average of UK resident banks' sterling weighted average interest rate - other loans, new advances to small and medium sized enterprises (in percent) not seasonally adjusted	Bank of England, CFMZ6LD
Interest rate, large firms	Monthly average of UK resident monetary financial institutions' (excl. Central Bank) sterling weighted average interest rate - other loans, new advances to private non-financial corporations (in percent) not seasonally adjusted	Bank of England, CFMBJ82
Interest rate spread	SME rate minus large corporates rate	CFMZ6LD - CFMBJ82
Collateral, SMEs
Percentage of SME loan applications	Demand side survey, percentage of SMEs seeking bank finance	SME Finance Monitor, Q4 2018
Rejection rate	1 minus success rate	SME Finance Monitor, Q4 2018
Utilisation rate
Non-bank finance
Leasing and hire purchases	SME asset finance: 2007-2011 SME figures estimated as 60% of total asset finance new business excluding high value transactions of £20 million or more and public sector finance.	Finance & Leasing Association (FLA)
Factoring and invoice discounting	SME Total (<£25m definition)	UK Finance
Other indicators
Bankruptcies, SMEs	Company insolvencies: total new company insolvencies, not seasonally adjusted	..
Bankruptcies, SMEs (growth rate)	Total new company insolvencies /estimated number of registered businesses Companies House	Insolvency Service, Companies House

References

Bank of England https://www.bankofengland.co.uk/ and https://www.bankofengland.co.uk/statistics/tables

BoE (Bank of England)

(2019) BoE, Credit Conditions Survey, 2018 Q4 https://www.bankofengland.co.uk/credit-conditions-survey/2018/2018-q4

(2019) BoE, Agents' summary of business conditions, 2018 Q4 https://www.bankofengland.co.uk/agents-summary/2018/december-2018

BEIS (Department for Business, Energy and Industrial Strategy) https://www.gov.uk/government/organisations/department-for-business-energy-and-industrial-strategy

(2018) Business Population Estimates 2018 https://www.gov.uk/government/statistics/business-population-estimates-2018

(2019) Longitudinal Small Business Survey 2018 https://www.gov.uk/government/collections/small-business-survey-reports#2018

Brismo (2019), Marketplace Lending Index: Issue 1 Brismo: data provided directly to British Business Bank

British Business Bank

(2019) Small Business Finance Markets Report, 2018/2019 https://www.british-business-bank.co.uk/research/small-business-finance-markets-report-2019/

(2019) British Business Bank, Small Business Equity Tracker Report, 2019 https://www.british-business-bank.co.uk/research/small-business-equity-tracker-2019/

Enterprise Finance Guarantee Statistics https://british-business-bank.co.uk/ourpartners/supporting-business-loans-enterprise-finance-guarantee/latest-enterprise-finance-guarantee-quarterly-statistics/

BVA DDRC SME Finance Monitor https://www.bva-bdrc.com/products/sme-finance-monitor/

Federation of Small Businesses Voice of Small Business Index Q4 2018 https://www.fsb.org.uk/docs/default-source/fsb-org-uk/fsb-sbi-q4-2018-final.pdf?sfvrsn=0

Finance & Leasing Association (FLA) https://www.fla.org.uk/asset-finance/

UK Government Gov.UK National Statistics, Insolvency Statistics: October to December 2018 https://www.gov.uk/government/statistics/insolvency-statistics-october-to-december-2018

HMRC, (HM Revenue & Customs), Enterprise Investment Scheme Seed Enterprise Investment Scheme and Social Investment Tax Relief, May 2018 https://www.gov.uk/government/statistics/enterprise-investment-scheme-seed-enterprise-investment-scheme-and-social-investment-tax-relief-statistics-may-2019

Invest EU / EDC: data kindly provided directly to British Business Bank

ONS (Office for National Statistics)

(2019) ONS, Business investment in the UK: October to December 2018 revised results https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/businessinvestment/octobertodecember2018revisedresults

UK Finance https://www.ukfinance.org.uk/

https://www.ukfinance.org.uk/data-and-research/data/business-finance/sme-lending-and-deposits

Notes

← 1.  Department for Business, Energy and Industrial Strategy (BEIS), Business population estimates 2018 (Annual business population estimates for the UK and regions in 2018). https://www.gov.uk/government/statistics/business-population-estimates-2018

← 2.  BEIS, business population estimates 2018.

← 3.  Bank of England, Statistics Database. https://www.bankofengland.co.uk/boeapps/database/

← 4.  Bank of England Statistics. https://www.bankofengland.co.uk/boeapps/database/

← 5.  Bank of England Statistics.

← 6.  ONS, Business investment in the UK: October to December 2018 revised results. https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/businessinvestment/octobertodecember2018revisedresults

← 7.  UK Finance. https://www.ukfinance.org.uk/data-and-research/data/business-finance/sme-lending-and-deposits

← 8.  BVA BDRC SME Finance Monitor (SME FM) Q4 2018 Report, pp. 49-52. http://www.bva-bdrc.com/wp-content/uploads/2019/03/BVABDRC_SME_Finance_Monitor_Q4_2018_FINAL.pdf

← 9.  BVA BDRC SME FM, Q4 2018 Report.

← 10.  BVA BDRC SME FM, published data, Q4 Report 2018, p. 100.

← 11.  BVA BDRC SME FM Q4 Reports, 2012-2017, and BBB calculations for Q4 2018. Since Q1 2018, questions relating to applications for finance (loans and overdrafts) have changed significantly resulting in a discontinuity on the data series. For further information, see Q4 2018 report.

← 12.  BVA BDRC, SME FM Q4 2018 Report, p. 107.

← 13.  British Business Bank would normally report these as unsuccessful (as opposed to rejected) applications, for example the applicant could be awaiting a decision, have refused the terms offered, or have been offered a different facility to that applied for.

← 14.  BVA BDRC, SME FM Q4 2018 Report, p. 205. NB there was a substantial change in questionnaire design from Q1 2018 onwards.

← 15.  Bank of England, (2019), Credit Conditions Survey - 2018 Q4. https://www.bankofengland.co.uk/credit-conditions-survey/2018/2018-q4

← 16.  Bank of England, (2019), Agents' summary of business conditions, 2018 Q4. .https://www.bankofengland.co.uk/agents-summary/2018/december-2018

← 17.  Bank of England Statistics.

← 18.  Federation of Small Businesses Voice of Small Business Index Q4 2018. https://www.fsb.org.uk/docs/default-source/fsb-org-uk/fsb-sbi-q4-2018-final.pdf?sfvrsn=0

← 19.  Bank of England Statistics.

← 20.  Finance & Leasing Association (FLA). https://www.fla.org.uk/asset-finance/

← 21.  Values are yearly average total of advances (used as a stock figure) provided by UK Finance. https://www.ukfinance.org.uk/

← 22.  Invest Europe / EDC data provided directly to British Business Bank. Year on year data are often affected by restatements due to deals that are reported subsequently to previously published annual data. Invest Europe / EDC implemented a substantial review of historic data, with their national partners, the results of which are reflected in their most recent data and reports.

← 23.  British Business Bank, Small Business Equity Tracker Report, 2019. https://www.british-business-bank.co.uk/wp-content/uploads/2019/06/Small-Business-Equity-Tracker-2019.pdf

← 24.  Brismo, 2019, Marketplace Lending Index: Issue 1.

← 25.  British Business Bank, SBFM, 2018/19: data provided directly by Cambridge Centre for Alternative Finance.

← 26.  BVA BDRC, SME FM, Q4 2018.

← 27.  BVA BDRC, SME FM, Q4 2018.

← 28.  Gov.UK National Statistics, Insolvency Statistics: October to December 2018. https://www.gov.uk/government/statistics/insolvency-statistics-october-to-december-2018

Total new company insolvencies divided by the estimated number of registered businesses Companies House. Insolvency Service, Ad hoc statistics, Estimated company insolvency rate in the UK, January to December 2017. https://www.gov.uk/government/statistics/estimated-company-insolvency-rate-in-the-united-kingdom-january-to-december-2017

← 29.  British Business Bank https://british-business-bank.co.uk/ourpartners/supporting-business-loans-enterprise-finance-guarantee/latest-enterprise-finance-guarantee-quarterly-statistics/

← 30.  HMRC, Enterprise Investment Scheme Seed Enterprise Investment Scheme and Social Investment Tax Relief, May 2018: Statistics on Companies raising funds. NB as in previous years, HMRC report figures are likely to be revised upwards as more returns are received. https://www.gov.uk/government/statistics/enterprise-investment-scheme-seed-enterprise-investment-scheme-and-social-investment-tax-relief-statistics-may-2019

← 31.  HMRC, Enterprise Investment Scheme Seed Enterprise Investment Scheme and Social Investment Tax Relief, May 2019. https://www.gov.uk/government/statistics/enterprise-investment-scheme-seed-enterprise-investment-scheme-and-social-investment-tax-relief-statistics-may-2019