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SME Lending Activity: China Spikes, US Banks Reboot

By PYMNTS

Small business lending activity across the globe is in flux. China saw a whopping 17 percent increase in small business lending in Q1, while U.S. banks are rebooting their efforts to capture SMEs from their alternative rivals. The U.K. and Canada, meanwhile, see their small businesses struggling to find financing. We break down the latest on SME lending in these key markets.

$3.2 trillion worth of outstanding SME loans in China means lending activity to small businesses in the community has inched up in Q1 2017. New data from the People’s Bank of China released the statistic, which signals a 17 percent increase from a year ago, reports said. That growth rate is faster than lending increases to larger corporations, the central bank noted, with small business loans now accounting for nearly a third of all outstanding loans — another increase from the year before.

The $330 million market cap of alternative SME lender OnDeck is giving rise to murmurs of a merger. OnDeck, which will release its quarterly earnings report next month, could be an acquisition target by rival Kabbage, though some analysts doubt such a move. On the other side of the conversation is Marathon Partners Equity Management, LLC, which has owned 1.75 percent of the company since late last year.

“We believe OnDeck’s platform ultimately needs to be in the hands of a larger, more secure owner in order to reach its full potential,” Marathon Managing Partner Mario Cibelli said in a letter to the company’s board last month. With analysts and investors watching OnDeck closely ahead of its incoming earnings report, rumors for a merger or acquisition are likely to flare up again.

Three out of five London SMEs have been turned away from lenders, according to data released by SME finance LDF. Its research revealed that more than half of London’s SMEs say the jargon associated with financing has turned them off from accessing a loan, and 57.6 percent said they have been turned down from a loan outright. The words SMEs trip over the most? CAPEX, COGS and ROCE — technical terms that make London’s small businesses struggle to get cash. According to LDF, the findings are “disturbing.”

Fewer than 15 percent of Canada’s small businesses are run by entrepreneurs aged 25 to 39, said CIBC Capital Markets in a new report. That’s despite this age group making up a quarter of the overall population. A lack of access to financing could be a significant challenges to this age range, analysts said, and may account for their low numbers in the SME community. “From companies with high growth rates to those with young owners, some SMEs do face more acute issues finding financing,” said Benjamin Tal, deputy chief economist at CIBC.

Three minutes could be all it takes for a small business to get financed from NatWest. The bank said last week that it has rolled out a new platform for its SME customers that have been pre-assessed for financing. Those small businesses can go online to see how much they could potentially borrow from the bank, and if they apply, they could see a decision in only a few minutes — with cash landing in their accounts as quickly as two days. NatWest’s new portal is a clear effort to position itself in competition with alternative and marketplace lending platforms, which have challenged traditional lenders by offering a faster, all-digital way for small businesses to get  financed.

The 0.25 percet federal interest rate hike could stifle SMEs’ ability to borrow, according to Craig R. Everett, PhD, director, Pepperdine Private Capital Markets Project at the Pepperdine Graziadio School of Business and Management. He spoke with PYMNTS about the impact the hike, which occurred in March, may have on SMEs and how another expected increase could continue to trouble small businesses that may already be struggling to manage cash. According to Everett, small business owners should “consider strategies to hedge against the need to borrow.”

A dip of 1.1 in the PayNet Small Business Lending Index may appear to be bad news — signaling a slight decline in Canadian small business lending in February compared to January. But according to PayNet data, medium-sized business lending increased nearly two points in the index, marking the highest level since January 2016 and reflecting separate data from CIBC Capital Markets that signals strong growth among Canada’s SME community. Still, PayNet President Bill Phelan said Canadian SMEs are mostly playing it safe: “They’re not finding a lot of organic economic growth, but they’re not risking a lot,” he said. “They’re not putting a lot of new capital to work. They’re maintaining their financial resources until the day they find some more growth.”

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