Bank lending is contracting faster for UK companies than for their peers in France and Germany, harming their prospects for growth.
According to a report on the UK mid-market by rating agency Standard & Poor’s (S&P), bank lending in the UK contracted 30 times faster than in France and five times faster than in Germany in the 12 months ending 30 September 2013.
This may explain why UK mid-market companies consistently maintain higher cash and short-term investments to total assets (a median of 8% from 2005 to 2012) than their large (6.8%) and small (6.9%) peers.
Although alternative funding sources are available to UK mid-market companies, S&P believes that investors are put off by the lack of transparency around these businesses.
UK mid-market companies are also less leveraged than their French counterparts. For large French companies, the average debt-to-EBITDA ratio from 2008 to 2012 was 3 times, whereas for mid-market companies it was 2.4 times. In the UK, the corresponding ratios were 2.3 times and 1.9 times respectively.
While the profit margins of UK mid-market companies were 32% lower than their larger peers in 2012, those margins are less volatile compared with the margins of bigger companies.
But there was some good news for mid-market businesses. The report said: “Exposure to the consumer discretionary and broad industrial sectors should help UK mid-market firms to benefit from the economic turnaround as the largest contribution to GDP growth came from the services sector in the third quarter and consumer spending is likely to contribute the most to economic growth in the coming two years.”
Sally Percy is editor of The Treasurer