British Business Bank Reports that Challenger, Specialist Bank Lending Hit £35.5 Billion in 2022

New British Business Bank research indicates that challenger and specialist banks provided £35.5 billion in lending during 2022. This means that challenger/specialist banks garnered a 55% share of the market. One would expect that many of these financing platforms are Fintechs.

The data is part of the Bank’s  Small Business Finance Markets 2022/23 report. Challengers and specialists delivered a record amount of credit last year.

Overall, gross bank lending to smaller businesses in 2022 was £65.1 billion, a 12.8% increase from 2021. At the same time, the report claims a significant drop in the proportion of smaller businesses using external finance: 33% versus 44% in 2021, but gross bank lending is still up due to larger average loan sizes.

The smaller business asset finance market also reached a record high in 2022, with an increase in new business of 11% in 2022 to £22.1 billion. This was due in part to rising prices and supply chain shortages, according to the report.

The report also shows a dramatic drop in financing towards the end of the year. In Q3 2022, only 33% of smaller businesses were using external finance compared to 44% the year prior.

The research indicates that the success rates for those seeking loans fell sharply from 80% to 64% year on year.

On the equity side for smaller firms, investment activity has “slowed considerably” since Q3 2022. At the same time, deals are smaller at lower valuations.

To quote the Bank:

“The report reinforces the importance of innovation in order to scale up UK productivity rates and encourage economic growth in a challenging macro-economic climate. The UK is ranked second in the G7 for our innovation environment by the Global Innovation Index, but the UK’s ranks fifth in the G7 nations in terms of the proportion of its smaller businesses that are innovative. The UK would require around 440k more innovative smaller businesses to meet the G7 average. Innovative businesses are more likely to use some form of external finance (65% vs 58% of non-innovators). Smaller businesses seeking finance to innovate are also reported to be using a wide range of finance products, with many smaller businesses opting for grant finance, asset finance or bank overdrafts to help them develop and adopt innovative products and processes. However, availability of finance (9%) and the cost of finance (8%) are identified as significant barriers to innovation.”

The investment value of net zero-related deals rose by 184% over the past year, jumping to a new record level of £1.7 billion.

The British Business Bank states that it is committed to financing solutions to climate change to help smaller businesses transition to net zero.

Louis Taylor, CEO, of the British Business Bank, said the report shows solid growth from challenger and specialist banks as businesses seek alternative finance options. Taylor also noted that the net-zero deal sector is showing growing demand as equity finance markets respond to investment in green innovation.

“Smaller businesses are clearly adapting to a challenging economic climate, with many reducing their use of external finance. At the British Business Bank, we are committed to supporting these businesses as they seek to achieve sustainable growth, and in turn boost economic productivity, by improving their access to external finance.”

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