Bank lending and alternative credit to boom as UK recovers

Tim Wallace
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PEER to peer lending is set to boom, increasing five-fold in the coming three years as small firms seek more credit to expand, the Ernst and Young Item Club forecasts today.

And bank lending to businesses is at last set to grow again after falling 25 per cent through the financial crisis.

Crowdfunding – where savers and investors lend money through peer to peer loan websites and groups, instead of putting their money in banks – stood at £200m last year.

Economists believe that could rise to £1bn in 2016, driven by small firms.

“SME lending is still very expensive for banks, especially given some of the regulatory pressures on asset quality, and some of the funding gap will continue to be filled by non-bank lending,” said the Item Club’s Carl Astorri.

“Private equity companies, hedge-funds and asset managers have all been mobilising to fill the gap. We also expect peer to peer lending to grow rapidly in the next few years as demand for funding from SMEs outstrips supply from the banks,” Astorri added.

Meanwhile the analysts expect bank lending to businesses to bottom out this year, falling to a trough of £422bn in 2013, more than 25 per cent below its 2008 level.

But they believe it will bounce back, rising seven per cent next year and 10 per cent in 2015, passing its 2008 peak with lending of £602bn in 2017 – an increase of 40 per cent on 2013’s lending.