Cost of UK debt lowest for eight years - Deloitte

The cost of UK debt has fallen to an eight year low and SMEs should take advantage of the borrower friendly market, according to Deloitte.

The UK’s recovery from recession has been punctuated by a series of external shocks, of which weakness in emerging markets is the latest.

A strong pound and weaker demand in emerging markets are dimming prospects for an export-led recovery - and putting greater weight on domestic demand to drive UK growth.

Against this backdrop, the UK banking market continues to be buoyant, with the availability of credit continuing to increase to nearly a seven year high and the cost of credit continuing to fall to an eight year low.

This has a resulted in a borrower friendly market and has created a window of opportunity for companies to obtain competitive funding packages or additional funding for growth or turnaround.

Alan Hamilton, Director of Debt Advisory at Deloitte in Scotland, said: “The market has been spurred on by the European Central Bank injecting unprecedented levels of liquidity in the form of quantitative easing.

This, combined with increasing levels of competition in the debt markets with high street lenders focussed on growth and the continual growth of the asset based lending (ABL) market along with new entrants is creating a favourable market for lending.

“The emergence of a significant but less well known alternative lender population and a host of innovative and flexible funding structures including unitranche, peer to peer, single invoice finance and unsecured funding has also made funding more readily available and at very competitive terms - both quantum and pricing. We are now seeing a market where the cost of credit in Europe is lower than the US, which is a significant change in historical trends.”

Whilst total advances to SMEs marginally fell from £100bn to £98bn in the year to March 2015, there are now more alternative options than ever which extend far beyond high street lenders and traditional ABL providers.

Mr Hamilton added: “There are an increasing number of new entrants to the market. Many are offering innovative finance options aimed at specific industries such as construction, retail and leisure. New solutions are now more widely available and have been successful in helping to finance SMEs where traditional options have fallen short.

“At Deloitte in Scotland we are actively helping corporates and SMEs obtain suitable funding to take advantage of the buoyant debt market. This is a very competitive market where borrowers are able to access attractive funding packages whether it is to stand still, expand, acquire or even fund turnarounds or restructures. The number of options available has created competitive tension in the banking market and we are seeing many local companies taking the opportunity to benefit from the current buoyant funding marketplace.”