Introduction
SME funding advisers have reported lower levels of activity and reduced business pipelines compared to six months ago, according to a recent survey conducted by ThinCats. The survey included responses from 50 UK corporate finance, debt advisory, accountancy, and private equity firms.
Decreased Funding Demand
The majority of advisers surveyed (56%) reported lower levels of funding demand compared to six months ago. Only 26% reported higher levels, while 18% reported no change. The main reasons for the decreased funding demand were macro issues (52%), interest rate hikes (36%), and valuation expectations (32%).
Impact of Interest Rate Hikes and Inflation
This softening demand for debt funding coincides with repeated interest rate hikes and high inflation levels in the UK. Around 64% of advisers stated that funding from banks is decreasing compared to six months ago, while only 28% mentioned a decrease in funding from non-bank lenders.
Perspective of Ravi Anand
Ravi Anand, Managing Director of ThinCats, expressed that the reduced demand for debt funding is not surprising given the ongoing macro challenges. However, he also noted that many businesses still view opportunities to generate new income streams, which offset the higher borrowing costs. Anand further highlighted that recent data indicating a decline in inflation rates may suggest approaching the peak of the current interest rate hike cycle. This could potentially instill more confidence among SMEs to pursue M&A deals, particularly if retiring business owners seek to exit ahead of the next general election.
Conclusion
In conclusion, the ThinCats survey highlights the decrease in activity and business pipelines among SME funding advisers. The reasons for this decrease include macro issues, interest rate hikes, and valuation expectations. However, Ravi Anand suggests that businesses may still find opportunities to grow despite the challenging environment. The declining inflation rates and potential end to the interest rate hike cycle could further boost confidence and encourage SMEs to pursue expansion plans and M&A deals.
