For the first time in the decade-long history of the survey, bank debt overtook equity funding as the most attractive form of external financing for small and mid-sized quoted companies. Previously, the biannual survey, which has been conducted with YouGov since 2011, has maintained a trend of preference for public equity markets.
This is no longer the case. In the most recent survey 52% of respondents said they would choose bank debt if they had a need for external financing whereas 39% would choose funding via public markets as their first port of call.
There may be several reasons for this. First, very low interest rates may be making debt more attractive but this is a long term trend - having been the case since Bank of England monetary policy was eased in response to the financial crisis.
It seems that it is the context of pandemic recovery that has made bank financing cheaper. Many listed companies have already been supported by public equity recently and have scaled back on debt during the pandemic if they were able to, so now may be the most advantageous time to take advantage of cheaper debt.
We have very little debt on our balance sheet and bank debt is cheaper than equity. Previously we have not had the profitability to support debt. (QCA Survey Respondent)
In terms of general outlook companies have remained confident in their own prospects. The emergence of headwinds such as supply chain bottlenecks and staff shortages since the last survey has impacted sentiment however. The headline figure of their own business outlook fell from 77.2 to 73.1.
In line with the long term trend, the outlook for the wider economy shows less optimism from companies compared with their view of their own business performance. The aforementioned headwinds have had a greater impact on the view of the wider economy’s performance with that index falling from 68.6 to 53.9 showing only a slightly positive outlook.