CBI @10am: Access to finance: loans and growth finance

Speakers:

• Rain Newton-Smith, Chief Economist, CBI
• Stephen Pegge, Managing Director, UK Finance
• Lisa Jacobs, UK Managing Director, Funding Circle
• Stephen Welton, Executive Chairman, BGF
• Ceri Thomas, Editor and Partner, Tortoise Media (Chair)

Overview:

Rain Newton-Smith:

• News of the potential vaccine has given a big boost to confidence, but the months ahead will still be tough
• The second lockdown has had a different impact on the economy than the first, but redundancies are higher than ever
• Mass testing will help us manage the impact of the virus in a more effective way, and the government’s forward planning in their strategy for allowing students to come home for Christmas is sensible and welcome
• The Chancellor’s announcement of the release of green bonds and the requirement of businesses to disclose their climate risks by 2025 is huge for the UK’s green agenda and our transition to a net-zero economy
• The CBI has been working closely with the government and the Treasury on the various access to finance schemes, but the next phase is critical. We need a financial system that can help both businesses that are in survival mode, but also those that are growing and thriving.

Stephen Pegge:

• Finance providers remain very busy, but the numbers of applications for finance is not as high as first lockdown
• There’s been an increase in the proportion of UK SMEs using finance, from 30% to 40%. In some sectors, such as manufacturing, this figure is as high as 50-60%
• We expect to see a different pattern going forward – some businesses will still struggle but others want to get on and grow
• The total outstanding debt for all SMEs has increased by 23%, which is not unsustainable overall. But some individual businesses are facing real pressures
• We need to think about the future and how these finance schemes evolve.

Lisa Jacobs:

• We’ve seen a big increase in the number of businesses borrowing who haven’t done so before
• Some of these businesses are in crisis mode, but a large number are those who have adapted their businesses over this period and want to use finance to pivot their business
• Two thirds of businesses think they’ll need finance through to next year
• During the last financial crisis, there weren’t many small business lenders. But now, there’s a lot more competition in the market, with over 100 accredited CBILS lenders. This is great for small businesses
• There’s also a lot more lending happening online, a trend which is likely here to stay.

Stephen Welton:

• This situation will leave behind a very changed landscape
• The role of the banks and government in supporting the economy through enormous disruption, quickly and at scale, has kept the economy afloat and unemployment down
• History shows us that when coming out of every recession, the key risk is investment being much lower than before. The significant fall in business investment is one of the most concerning statistics
• We need to recapitalise a range of companies who have struggled. This will require the support of both lenders and equity, which is a new dynamic
• Due to the uncertain macro-economic picture, companies are being much more cautious. So, there’s a latent need to give certainty to encourage investment.