UK firms seek out new forms of finance

UK companies are increasingly looking past banks to other forms of financing as a result of the financial crisis, according to an industry survey out today.<br /><br />And due to the difficulties in raising cash, firms are &ldquo;more cautious&rdquo; about all types of investment such as research and development, leading to projects being delayed or scrapped altogether, said a joint report by the Confederation of Business Industry (CBI) and Deloitte, launched at the CBI&rsquo;s annual conference today.<br /><br />Fifty-five per cent of the CBI members questioned said they wanted lower levels of risk from the debt they now took on. <br /><br />The survey &ndash; called The Shape of Business: The Next 10 Years &shy;&ndash; also found 50 per cent of all firms asked will use less bank debt in the future, 44 per cent will rely more on equity finance and 26 per cent said they would issue more bonds. <br /><br />CBI director-general Richard Lambert said: &ldquo;Companies will want to take lower risks with their balance sheets for some time to come. The cost of credit is expected to be higher, and banks will be more risk averse. The message for me is that financial engineering is yesterday&rsquo;s story.&rdquo;<br /><br />In the first seven months of this year UK firms repaid almost &pound;32bn in bank loans and raised &pound;25bn in equity, which the report says is a &ldquo;complete turnaround&rdquo; from the period of cheap bank debt up until 2007.<br /><br />The survey predicts private pools of capital such as sovereign wealth funds and private equity will increasingly be used by companies, because they typically invest over a longer five to seven year cycle.<br /><br />This more cautious business environment means new projects will be subject to &ldquo;much more rigour&rdquo;, will take longer to get off the drawing board, and ones that carry &ldquo;excessive risk&rdquo; will be stopped, the report said. Currently 68 per cent of firms surveyed said their capital spending is constrained.<br /><br />However, Deloitte senior partner and chief executive John Connolly said he was &ldquo;cautiously optimistic&rdquo; about 2010 because of the &ldquo;resilience&rdquo; the UK economy has shown over the last 18 months, with less unemployment and fewer corporate failures than had been predicted.