Gauging the performance of the projects that the UK government has undertaken in increasing the financing options of businesses like Project Merlin and Funding for Lending, one would consider that financing for business has been a successful endeavor. However, Bank of England’s reports between 2012 and 2015 indicates that the stock of loaning to business firms in the country have constantly fallen, even though the trend is reducing. This shows that there are factors hindering lending to business entities. The British Chambers of Commerce asserts that whereas existing businesses easily access funding, several growing businesses do not easily access credits. The Forum of Private Business and the British Bankers Association contend that reduced loaning amounts signify a low demand and not supply. The bank of England argues that business entities, mostly the big ones access various forms of credit besides bank loans such as engaging in capital market securities (Upton, 2016).
Starting from 2008, significant changes within the market of small businesses financing has occurred and resulted in new entrants as well as the emergence of substitute types of small business loaning like peer-to-peer loaning and crowd-funding. The new players have begun to provide new types of finances while at the same time providing competitiveness in the sector. Small businesses loaning has gone through a systemic change within a short span of time. The entrance of new financing sources has challenged existing principles such as pecking order which was preferred as and new ideologies such as internal finance, debt finance, and equity finance have become options. Before 2015, there existed persistent shrinkage of credit which caused a lack of funding to be considered the new normal in business circles. Brown and Lee (2016) found that 1 in 7 firms sought funding from external banks (Brown & Lee, 2016). The intervention of the government saw the establishment of the British Business Bank which provided an alternative for the 4 major banks (Lloyds, HSBC, RBS, and Barclays) for the provision of finance (UK Parliament, 2016).
New policies saw the introduction of regulations which increased competition in the banking sector, therefore, changing the financing landscape by the introduction of substitute forms of financing. Among this substitute, sources are the new fi-tech (financial-technology) which is a technologized platform. The UK has experienced a proliferation of substitute sources and market research suggests that an estimate of 20000 firms in 2015 obtained their financing through online fi-techs. Many small and medium to high firms gradually prefer new internet-based funding providers to meet their external funding needs. The financing platforms have thus changed into alternative forms such as crowd-funding, peer-to-peer loaning, and invoice trades. Market research points that the new financing platforms raised amounts of up to approximately £3 billion in 2015; enabling small and medium to high firms obtain funding for businesses (Brown & Lee, 2016).
The following chart shows the gross lending between March 2017 and March 2018.
UK Finance’s report that researched the number of loans that firms had received in the first quarter of 2018 indicates the following results. Between 2017 and 2018, the number of new loan approvals increased by approximately 1700 to 73971 in the first quarter of 2018. Big firms such as production and manufacturing industries received an increase of 839 within the same time frame. The net deposits of firms accumulated to £173 billion which superseded a borrowing of over £95 billion within the same time pointing at a changed financial landscape (ukfadmin, 2018).