The unexpected collapse of US-based Silicon Valley Bank (SVB) in March has already created ripples on this side of the Atlantic. Firstly, HSBC acquired SVB’s UK’s client base and then, due to Credit Suisse’s exposure to the collapse, the former giant of Swiss banking has now been bought by rival UBS in a Swiss government-backed deal. The fallout from the Californian Bank is likely to extend further with Goldman Sachs predicting an impact to growth in the UK and wider Eurozone.
Economists at the investment bank lowered their 2023 economic growth forecast for the euro zone on Monday, citing ongoing stress in the global banking system and an increase in economic uncertainty. Its analysts predict a 0.3% hit to the euro zone’s real gross domestic product (GDP), reducing the growth forecast to 0.7% for 2023, while the UK growth forecast remains at 0.0%.
This crisis in confidence has led some commentators to ask whether a banking collapse – akin to the great crash of 2008 – is on the cards. Thankfully, there is a less risk in the UK banking system now compared to 15 years ago and consensus opinion suggests we are not necessarily facing an immediate widespread financial crisis of the sort we saw in 2008.
Speaking to The Guardian, Jón Danielsson, a director of the Systemic Risk Centre at the London School of Economics said “The global financial system is much more robust than it was in 2008. The government authorities understand the uncertainty and vulnerabilities much more, and the financial system is much better at absorbing shocks.”
The end of cheap money
Even if the chances of another global banking crisis are low, the prospect of further central bank base rate rises will be unwelcome news to traditional lenders. Many banks will be forced to pass on the base rate increases into the cost of loan products, which can impact their lending profile.
What we saw in the aftermath of the 2008 banking crisis was that loans from large banks to small businesses virtually disappeared between 2008 and 2011, while loans by small banks were down dramatically. In the US, the total amount of commercial loans to small businesses between the second quarter of 2008 and the second quarter of 2010 declined by $40 billion.
Despite the economic recovery that began to take place between 2011 and 2012, there was no corresponding immediate recovery in bank lending to small businesses.
A new funding landscape
This struggle in securing SME finance from traditional lenders created a gap in the funding market in which alternative lenders, fintech operators and challenger banks were able to come to the fore. This band of disruptors have fundamentally altered the SME financing landscape. Across Europe, the alternative finance sector is now responsible for providing €22bn of funding to businesses, with 60% of that taking place in the UK market.
Launched in 2008, Capify is one such example of an alternative finance provider that has continued to serve the specialist needs of SMEs over the past 15 years.
John Rozenbroek, CFO/CCO at Capify, says: “Capify was born of a genuine need we saw in the SME business community to access finance at a time when traditional Banks were tightening their lending.”
He adds “SMEs are the lifeblood of any economy and we are committed to providing easy access to financing options that enables them to navigate challenges and deliver on their growth plans”.
According to Capify’s Q4 2002 Business Confidence Survey, 55% of SME respondents state that they would not be confident of securing that finance from their traditional banking partners. It is little wonder then, that the recently published British Business Bank’s Small Business Finance Markets 2022/23 report found £35.5 billion of SME lending came from challenger and specialist banks in 2022. This exceeded lending by the major banks during the period, giving challenger and specialist banks a 55% share of the market
The world has changed an awful lot since 2008. Regulation is tighter and levels of capitalisation in the banking system are more robust. But the issues of SME access to finance prevail. As many banks face a crisis of confidence and a challenge to their operating models, a growing number of SME owners are looking to alternative sources of capital to meet their needs.
At Capify we offer a range of business loans to help support your business through high and low periods. Check to see if you’re eligible for one of our loans with our online eligibility checker. Or, if you’d prefer to talk to a member of our team, we’d be happy to guide you through the process. Give us a call today on 0800 151 0980
