Lending to UK businesses as an investment in 2014

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Nick Moules
6th January 2014

Business is invariably interwoven with politics and 2014 is set to be one of those years where politics has an enormous bearing on UK business. The question for those who lend to UK businesses is whether any of this will make a difference to investment decisions.

Big in the news at the moment is the lifting of the immigration cap on migrant workers from Romania and Bulgaria. Ed Milliband has suggested the UK is addicted to cheap labour, while rumours of a planned cap on migration by the Government (recently slammed by Vince Cable as unenforceable and illegal) reveal politicians’ eagerness not to let their election campaigns become dominated by immigration. Whatever your political views, it will doubtless create opportunities for UK businesses to easily employ young and talented people from these countries.

In a free market, it is important to have such competition, which can of course reduce a business’ costs and make them more profitable. The problems for the MPs is failure to raise wages in line with inflation means falling living standards and discontent, so expect some state intervention here.

Within the UK, optimism about the future of the UK economy continues to rise. Of 87 economists surveyed by the Financial Times, over 70% thought the UK would maintain or increase its rate of growth in 2014.

A potential stumbling block for UK businesses is the Scottish vote on independence set for September 2014. While opinion polls still favour the No vote (albeit with less of a majority now), the uncertainty for firms that trade with Scotland at present will be unwelcome ahead of the poll date. Should the Yes vote prevail, an unprecedented period of uncertainty would begin and no-one can possibly see how that would end. Scotland is a country with a heritage in financial services and valuable natural resources, but with deep-rooted social issues and it might not be able to cherry pick whether it keeps the pound or gains EU membership.

What about trade further afield? The new set of countries tipped for big things are the MINT block (Mexico, Indonesia, Nigeria and Turkey) so businesses that have done well in harnessing growing middle class trade from the BRIC nations (Brazil, Russia, India and China) should take a long look at these markets to see if the successes can be replicated there. The IMF forecasts average wage growth in MINT countries to shoot up by up to 400%, 600%, 900% and 400% by 2050 respectively.

Firms with established bases and trade with these countries could be in line to capitalise on their early investment.

Lending to businesses by banks continues to be reported as falling, with November’s fall the largest monthly drop since April 2011. There are of course a couple of ways of looking at this. Firstly, businesses have been paying down debt, reducing their reliance on borrowing and putting themselves in a better financial position. Or, they’re being denied finance to grow.

Lending to SMEs was actually up by £200m in the same period, so it does suggest those with the appetite for growth are being serviced, albeit not by the banks in the same way as they were before.

What you can be sure of is the continued rise of alternative finance to plug this gap, like peer-to-business lending. We’re looking to pass £20m of loans in 2014, which could mean at the current average, we’ll help over 400 businesses gain valuable growth finance.

As the industry becomes regulated in April, the doors will open to millions of private investors looking to take cash away from defunct savings accounts and lend to ambitious UK businesses for better returns and to see the economy grow.

With regulation comes increased awareness and we’re confident many more profitable UK businesses will look to finance their growth through private investors.

The future looks bright for those who do lend to UK businesses – opportunities and confidence are up and advances in platform capabilities should make the industry even more buoyant.

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