Geopolitical volatility in the U.K. related to Brexit uncertainty is having widespread ramifications in the financial world.
One area of impact is small business finance and lending, with small businesses and lenders seeing a slowdown in demand. It’s a trend that starkly contrasts with continued growth in small and medium-size business (SMB) finance in the U.S., according to the latest data.
Small business lending platform Funding Circle commented on this effect in its latest earnings data, noting that there has been “some deterioration” in its higher-risk small business loan bands in the U.K.
“This has been driven by a deterioration in the consumer credit environment since 2016, which affects smaller and younger companies,” the firm stated last week. “We continue to monitor the macroeconomic environment, proactively making adjustments where appropriate.
Though the company didn’t note Brexit specifically, Funding Circle highlighted those macroeconomic factors that led to wider losses for the first in the first half of the fiscal year ended June 30.
Last month, top banks in the U.K. reported a slowdown in business investment ahead of Brexit.
“The world has changed a bit,” said one unnamed executive in an interview with Reuters. “There is a slowdown across the commercial piece. It started off with people holding off investment. Now they’re just not transacting.”
Meanwhile, in the U.S., both banks and alternative lenders say they’re experiencing an increase in small business loan volume.
“Along with an increase in overall funding applications, we have noticed an increased percentage of business owners using the capital to cover operating expenses and preemptively pad their working capital,” said Credibly SVP of New Originations Gary Bailey in a statement last week, pointing to new data from Dun and Bradstreet and the Pepperdine Graziadio business school that concluded demand for small business finance grew in the second quarter of 2019.
While Credibly’s commentary suggests demand is up for alternative lenders and FinTechs, separate data from the Biz2Credit Small Business Lending Index revealed traditional banks are also seeing an increase in approved small business loan volume.
“Small business lending remains strong and is growing at big banks and at regional and community banks,” said Biz2Credit CEO Rohit Arora in a statement. “Entrepreneurs who have a good credit history are having success in securing capital in 2019.”
The data behind the current state of small business lending further exemplifies the growing divide between experiences in the U.S. and the U.K. PYMNTS takes a look at some of that data below.
A 14 percent increase in losses for Funding Circle, year-over-year, can partially be attributed to an “uncertain economic environment,” the company said. The company has had a volatile few months, having hit $2 billion in loan volume earlier this year in the U.S. Despite its successes in that market, its U.K. operations have seen challenges — and the company has decided to delay a launch in Canada.
£500 million worth of loans has now been issued via U.K. platform ThinCats, presenting an alternative view of Brexit’s impact on small business finance as alt-lenders and traditional banks work to pad businesses’ balance sheets with extra capital to weather the volatility. “It’s great to see that U.K. small and medium-sized enterprises are continuing to invest in their futures despite Brexit uncertainty,” ThinCats Chief Executive John Mould said in a statement last week.
34 percent of U.S. businesses plan to seek new funding in the coming six months, Dun & Bradstreet’s report revealed. Smaller companies are more likely to seek funding: 35 percent of small firms plan to pursue capital, compared to 28 percent of middle-market companies, researchers noted. Further, 29 percent of all firms surveyed said they plan to seek funding through FinTech, painting a rosy picture for alternative lenders operating in the U.S. market.
27.7 percent of SMB loan applications were approved by big banks in July, Biz2Credit found, marking a post-recession approval record. Approval ratings by smaller banks and institutional lenders also increased during the month, with analysts pointing to the Small Business Administration’s SBA loan program as a particular bright spot.