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Smaller British businesses are increasingly wary of bank borrowing even if it means forgoing growth, according to new data to be published today.

Some 70 per cent of small British firms are willing to avoid borrowing money, even if it means giving up on growth, the data from the British Business Bank will show.

Demand for bank loans from smaller firms fell to its lowest since comparable data was first collected in 2011, with only 1.7 per cent of small firms seeking new loans.

However, Keith Morgan, head of the government-owned BBB, said the UK has a “thriving start-up and growth culture”, but that firms need to be able to access finance to be able to move to a higher gear of growth.

“They do have to have access to long-term, patient capital,” Morgan said. “We certainly can’t be complacent in our current position and we need to invest in these companies.”

The BBB recently stepped in to offer support to the small firms which were contractors of the collapsed construction and outsourcing firm Carillion. At the start of the month it said it will work with private-sector lenders to enable them to offer £100m in loans.

“We can point very firmly to evidence that this type of intervention works,” Morgan said.

He also hailed the “encouraging growth” in alternative finance models to the traditional banks as a sign of increased choice for smaller firms.

“Small businesses are prepared to shop around more”, he said, with the internet and the recent proliferation of non-traditional lenders aiding the increase in competition.

Peer-to-peer lending surged by over 50 per cent in 2017, while asset finance enjoyed double-digit growth for the fifth year in a row.

Firms are also seeing increased success for equity fundraising, with a 79 per cent jump in the first three quarters of 2017. While the amounts raised were skewed towards the biggest start-ups, the number of equity fundraising deals also rose by 12 per cent, after dipping in 2016.

Source: City A.M.

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