Small companies are delaying investment decisions and losing some funding opportunities in the uncertainty triggered by UK’s vote to leave the European Union, according to business lenders.
Further progress on Funding Circle’s £100m deal with the European Investment Bank, which was unveiled last week, is now almost certainly off the table, admitted James Meekings, who co-founded the peer-to-peer lender.
“That was a start to create a multi-billion pound programme for getting more funds into UK business. The programme is at risk. If I’m honest, it’s very unlikely to happen now. Who knows? From our situation we obviously want it to happen,” he told the Business Select Committee.
Mr Meekings said the British Business Bank, which has invested about £60m in Funding Circle, should step in to fill the gap for small business borrowing.
A spokeswoman for Funding Circle said after the hearing that the EIB has given assurances about its initial £100m commitment, but any further work on the partnership is now in doubt.
“We would expect that from a demand perspective that companies will probably delay making investment decisions and therefore requesting finance as well. The greatest thing we can all do is to remain collaborative, but also to provide as much certainty as quickly as possible,” said Marcus Stuttard, chief executive of London’s junior market Aim.
Mr Stuttard said that large investors had continued to back smaller listed companies throughout previous periods of upheaval.
“Following the financial crisis, actually whilst we saw the number of new companies coming to Aim fall off, we saw companies on the market raising record amounts of finance. The institutional investors continue to provide finance,” he said.
In a hearing on small company funding, Mr Stuttard added that positive changes such as the inclusion of Aim stocks in ISAs and the abolition of stamp duty on these shares were created in the UK and should not be affected by last week’s referendum result.
Chris Hulatt, the founder of technology specialist Octopus Investments, noted that between 30 and 40pc of the chief executives in his portfolio companies are from beyond the UK.
“They’ve come here because we’ve got not just the finance but the skills…
I’m not sure there’s great clarity on exactly how things are going to pan out but I think it’s fair to say there’s worry in the entrepreneurial community about what this will look like.
“On Friday morning I saw emails from some of our investee companies saying our tech team is 90pc made up of people from elsewhere in the EU. What’s going to happen to them?”
Gareth Oakley, managing director of SME banking at Lloyds, said it was too soon to predict the impact of Brexit on appetite for corporate bank loans, but “we’ve gone to all of our customers and the tone is very much business as usual”.
Mr Oakley said that small business financing “has moved on quite a lot” in the last few years, with Government programmes such as Funding for Lending as well as new initiatives from banks and other lenders improving access.
However, many small companies are still unfamiliar with their options, argued Rishi Khosla, chief executive of the new lender Oaknorth Bank. While accountants and other advisers are helping to inform fast-growing firms about their next steps, “there are examples where more can be done” to help new sources of capital.
“There are very good Government incentives like the Funding for Lending scheme… but if you look at a lot of plumbing around collateral requirements and haircuts, they significantly disadvantage a new institution such as ourselves that don’t have a back book to pledge as collateral,” he said.
As well as the upheaval in the markets, Aim is preparing for the merger of its parent firm, the London Stock Exchange, with its German counterpart Deutsche Boerse.
While select committee chairman Iain Wright suggested that Aim “would be jettisoned to make savings” as part of the tie-up, Mr Stuttard said the market remains in place “for strategic reasons, not just revenue reasons… If we were looking at this purely from a revenue perspective, we wouldn’t have operated Aim for more than 20 years”.
“I can categorically state that in the same way that we have proposed savings we have also absolutely reconfirmed our commitment not just to Aim but all of our other SME programmes.”