Will mid-market firms struggle to access finance if banks like Barclays tighten lending criteria?
Jake Wombwell-Povey, chief executive and co-founder of Goji Investments, says YES.
Many firms still rely on high street banks for their banking services. Although awareness of alternative providers is growing, traditional lenders are still most companies’ first option, and many rely on their overdrafts as their go-to form of financing.
If high street banks like Barclays pull back, I foresee it will do two things. First, it will remove most firms’ “credit safe harbour”, and many may not look much further. Second, it will repeat what we saw immediately after the financial crisis, when many businesses didn’t seek credit from anyone because of the perception that it wasn’t available and that it was a bad time to invest.
Both of these “softer” demand factors, as well as the hard supply factors, will mean less credit in the real economy at a time when it needs it most. This could become a vicious, self-fulfilling circle, but the flip-side may be that interest rates remain lower for longer, as the Bank of England seeks to continue to support the economy.
Symon Drake-Brockman, managing partner at Pemberton, says NO.
A decade ago, financing for small and medium sized corporates in the UK was concentrated in the hands of a few dominant banking groups. Today, however, the burden of funding has been distributed among a far greater number of players.
Alternative lenders – whether they are challenger banks, venture capitalists, peer-to-peer platforms, or direct lenders – have become ubiquitous in the UK corporate finance system. While this group cannot and will not pick up all of the slack, the likelihood of the economy catching a proverbial cold if traditional banks turn off the taps has lessened dramatically.
We are at the point in the credit cycle where we may see weaker, marginal corporates struggle from a combination of less funding, geopolitical volatility, and tighter monetary policy. But the high-quality growth companies who lead their sectors will prosper, and they will do so with a diverse set of lenders.
This will not be a temporary shift: alternative financers will be supporting UK corporates for generations to come.