Responding to The British Business Bank Small Business Finance Markets Report 2022

How does the funding landscape look for SMEs as we emerge from the global COVID-19 pandemic? The Swoop team responds to the findings of BBB’s annual survey report

After two years of uncertainty around shutdowns and restrictions, has the economy bounced back for Britain’s SMEs? Or is there still a major hill to climb?

The British Business Bank’s Small Business Finance Markets Report 2022 paints a mixed picture for the coming year: although there is a return to pre-pandemic levels of lending and a boom in equity investment, we can see again that the familiar story of an unequal spread of money is playing out once more: a full 70 percent of investment goes to London-based firms while businesses led by women and ethnic minorities continue to see a higher rates of rejection for finance. 

Rhys Cunnah, Head of Unsecured and Asset Finance at Swoop says that rejection rates are disappointing, especially given the rise of non-traditional lenders:

“In contrast to the findings of BBB, we have seen an increase in new business across all genders and ethnicities with an increase in new emerging markets such as e-commerce, so there is clearly an appetite out there that once again traditional banks are not meeting. With the typical lending market changes, many SME owners are now aware of the challenger banks. Challengers are open to more new-start businesses which are prepared to answer these needs with bespoke products in a variety of different sectors.”

Neil Dillon, Head of Equity at Swoop says that the London bias is something that Swoop has worked hard to address: 

“Swoop is working with regional funds and partners to better support businesses located outside London. However, to understand why there is a bias towards London, it’s important to remember that the networking aspect of the venture capital industry is one of the big appeals of the job. This is why London is such a draw to ambitious people who want to succeed in the industry.”

Rhys Cunnah adds that lending’s bounce back is good news for businesses across the country and that success is less to do with location and more to do with getting the right help:

“Swoop supports a variety of SMEs across the UK and has lenders which are not location driven. This allows clients to get full market access to lending products in one place. They are placed with an experienced Finance Manager who is then able to discuss existing options within the market.” 

Longer-term, the UK is moving to Net Zero, and the BBB report makes it clear that achieving this ambition means removing barriers to finance for eco-innovators and eco-adopters alike. Greening the economy won’t come cheap and needs to be seen as an opportunity rather than a risk for lenders. 

Rhys Cunnah says that many lenders are now placing an emphasis on sustainability in the businesses to which they lend:

“There is evidence that investing in sustainability brings considerable benefits to a company. The market is full of options that incentivise SMEs to switch to greener processes and operations. As sustainability measures usually require an upfront cost, we work with a number of alternative and specialist lenders which offset the interest, making it a more affordable solution for a business striving to become more environmentally friendly.”

Neil Dillon says that he has noticed a major shift in the appetite for investing in sustainable businesses: 

“We have seen a huge surge in investors seeking sustainably focused startups. In fact, 75 percent of our network are actively seeking businesses that improve ESG scores, achieve net zero or tackle sustainability. And ideally, a business would tick the box for two or three of those aims.” 

The other change that Neil and his team has seen is that equity investment is happening at earlier stages of a business’s lifecycle, a trend about which Swoop feels broadly positive:  

“We hope VCs see the advantages of backing founders at the earliest possible stage, rather than chasing the same deals once the valuation is skyrocketing. Founders need support most when they are trying to gain traction and product market fit, not when they have been featured in Sifted seven times and have VCs queuing up to invest.”

Read the full Small Business Finance Markets Report 2022 here.

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