Predicting the environment within which those who specialise in lending money to SMEs will be operating during 2016 is a pastime which inevitably runs the risk of offering up plethora of hostages to fortune. After all, when the people in charge of running the UK economy from top to bottom find it so difficult to accurately gauge factors such as growth and borrowing moving forward, the chances of hitting the target when making guesses within a much more specialised and specific sector are fairly slim, but that’s not to say it’s easy to resist the temptation.Here are our key predictions for 2016:
A Rise In Interest Rates
One of the easiest predictions to make is that interest rates are almost bound to rise at some point during the next 12 months. On the one hand that’s merely a reflection of the fact that they’ve been at or close to as low as they can be for more than six years now, and that as inflation slowly rises and general economic growth becomes more firmly established, the choice to incrementally crank up the rate in an attempt to forestall any damaging inflationary pressure should seem obvious. The fact that rates in the US went up during December doubtless makes a rise in the UK more likely, although factors such as uncertainty over the likelihood of Brexit or the ongoing performance of the Chinese economy may yet have an impact.
Increase In Alternative Finance Activity
The other major changes within the realm of SME funding will in all probability centre upon the forward march of both alternative sources of financing and an increased use of technology. A survey carried out by the financial services group Close Brothers towards the end of 2015 found that 1.35 million small businesses were expecting to expand during 2016 with 29% planning to access funds for investment. Of these companies, 30% were aiming to borrow up to £100,000 with a further 18% seeking a higher level of funding. The vital part which such funding plays in the success of virtually every SME was underlined by the fact that 13% of SMEs claimed to have failed to take advantage of a business opportunity during 2015 due to a lack of available funds.
Decrease In Traditional Lending Activity
Another 2015 report, compiled by Albion Ventures, found that the use of traditional bank loans and overdrafts as a source of funding for SMEs continued to fall during the year. Of the 1,000 businesses featured in the report only 49% still accessed funding in this manner, a drop from 76% in 2013. The combination of stricter rules regarding the reserves which major high street banks now have to hold, allied to the cultural change which appears to have become entrenched since the crash of 2007/8, will doubtless see this trend accelerate during 2016, particularly amongst those SMEs which already work within the tech sector and thus feel more comfortable embracing innovation.
Examples of this trend include the company JustPark, which brings together drivers seeking a convenient parking space and vacant spots and which, during 2015, raised £3.7m via equity crowdfunding, the largest fund raised in the UK to date via this method.
P2P Becomes Part Of The Financial Mainstream
Meanwhile, the head of alternative at KPMG, Warren Mead told the Financial Times that 2016 could be the year during which P2P lending becomes part of the financial mainstream, with the amount of lending accessed through the relevant platforms having risen from £2.6 billion at the start of 2015 to £3.7 billion by the end of the third quarter. The size and flexibility of the smaller ‘fintech’ companies allows them to react more quickly to changes in both technology and the wider environment, and to provide funding for individuals and SMEs who may already have been turned away by more traditional lenders. With a major player such as KPMG predicting strong further growth in the sector, this looks like being one 2016 development which is more probable then simply possible.