Funding growth in the new financial year

16th April 2024

Image of financial growth on a chart

The recent growth in stock market indices is fuelling hope that the global economic outlook is sustainable. The MCSI World Index shows that global share prices have doubled in value since the Covid-19 pandemic began four years ago. At present there is much commentary as to when the Bank of England will reduce interest rates, bringing the chance for cheaper funding to assist the growth of the UK economy.

The spring budget 2024 was portrayed as a budget for long-term growth. The Chancellor announced the LIFTS initiative that is intended to unlock £1bn of private capital, along with an extension of the Recovery Loan Scheme that is to be renamed the Growth Guarantee Scheme which will be in place until March 2026.

These initiatives are in addition to the Mansion House Reforms that encouraged pension funds to invest in the UK market. The alternative lending providers will play a crucial role as providers of capital for the future growth of business.

The British Business Bank’s March 2024 annual report into small business finance gives grounds for optimism for debt funding in the SME and smaller business market. The need for more funding is apparent as SMEs adapt to the challenges of funding net zero, the increasing use and impact of artificial intelligence and digital technology allied and the return of a more normal interest rate regime. It is estimated that the additional funding requirement to achieve net zero will be in the region of £50-60bn per annum, with a substantial amount coming from the private sector.

The report shows the continued growth in funding by challenger and specialist banks. For a third consecutive year these outpaced lending by the big five banks. The challenger and specialist banks contributed 59% of total gross lending. Bank lending itself was £185bn in 2023 which is the same as in 2016. Of this, £59.2bn was lent to the smaller business sector. In 2023 asset based lending increased by 7% to £23.5bn. The statistics in the report also demonstrated a significant increase in the number of business seeking funding. In addition to debt provision, equity investment remained historically high in 2023 at approximately £2bn per quarter.

The challenger and specialist lending sector will continue to continue to grow and develop and remain a vital source of funding. Since 2014, 60 new banking licences have been issued of which 36 relate to providers serving smaller businesses. We are seeing demand for the use of specialist funding is increasing.