Tightening credit conditions highlight role for innovative financing in the UK and EU

Financing from banks is becoming increasingly difficult to access in the fallout from Covid-19, according to two recently published central bank surveys in the European Union and United Kingdom.

The latest Bank Lending Survey by the European Central Bank shows a clear tightening of credit standards for loans to firms in the fourth quarter of 2020. “The tightening was driven mainly by banks’ heightened risk perceptions, reflecting uncertainty around the economic recovery and concerns about borrowers’ creditworthiness in the context of renewed coronavirus-related restrictions,” said the ECB. The findings of its survey of 143 lenders also reveals that they expect conditions to be squeezed further in the first quarter of 2021.[1]

In the United Kingdom, the Bank of England’s Credit Conditions Survey for the final three months of 2020 found overall credit availability declined for small firms, although it did not change for the corporate sector as a whole.[2] The survey also showed widening credit spreads over benchmark rates for secured household loans and corporate debt, with the cost of corporate borrowing expected to keep rising in the first quarter of 2021.

Reasons for optimism

“There are reasons for optimism with vaccination programmes accelerating and European economies starting to re-open,” says James Mungovan, Managing Director, Europe, EquitiesFirst. “Individuals and businesses see opportunities for growth in the future, but when it comes to accessing credit, many borrowers are finding that their traditional lenders are more constrained.”

“Even as the supply of credit from traditional sources is becoming tighter, we are seeing some strong and distinct drivers of demand from borrowers,” adds Mungovan. “In the sectors where cashflows have been hit hardest by the pandemic, like aviation and hospitality, debt refinancing is a priority. However, in industries like fintech and healthcare, investors feel now is the time to inject capital to finance growth.”

Unprecedented stimulus

During the pandemic, the UK and the European Union have rolled-out unprecedented spending programmes intended to provide a safety net for firms and households. This spending has buoyed economies – and many asset prices – by releasing enormous volumes of liquidity.

According to the Brussels-based think tank, Bruegel, the UK has spent 8.3% of its 2019 Gross Domestic Product on “immediate fiscal impulse” measures alone, with considerable further support in the form of payment deferrals and other liquidity measures and guarantees.[3] The EU’s EUR1.8 trillion recovery plan is the largest stimulus package to have been financed through the EU budget.[4]

Challenging conditions

Debt capital markets have boomed since the beginning of the pandemic as borrowers sought to capitalise on easy monetary policy conditions and lock in low funding costs. Global bond issuance rose 18.2% year-on-year in 2020, according to S&P Global Ratings. US Treasury yields have been rising in 2021, signalling a potentially higher cost of borrowing in capital markets.[5] As credit conditions become increasingly difficult for borrowers, Mungovan sees further opportunity to provide innovative capital solutions for clients.

Equity loans

“As a specialist financier, we are frequently invited by other financial institutions such as private banks to collaborate on opportunities where they may not have the appetite or risk parameters to take on themselves,” says Mungovan.

EquitiesFirst is a global investment firm that provides innovative loans against the listed equity assets of long-term, concentrated shareholders. “Our role in the community is to provide progressive financing solutions for the borrowers we partner with. As the lending environment becomes more challenging, our ability to be flexible in our lending parameters means we usually see an increase in demand.” 

[1] https://www.ecb.europa.eu/stats/ecb_surveys/bank_lending_survey/html/ecb.blssurvey2020q4~e89c77d212.en.html

[2] https://www.bankofengland.co.uk/credit-conditions-survey/2020/2020-q4

[3] https://www.bruegel.org/publications/datasets/covid-national-dataset/

[4] https://ec.europa.eu/info/strategy/recovery-plan-europe_en

[5] https://www.spglobal.com/ratings/en/research/articles/210128-credit-trends-global-financing-conditions-bond-issuance-could-decline-3-to-8-trillion-in-2021-11817830#:~:text=Global%20bond%20issuance%20in%202020,up%2018.2%25%20relative%20to%202019.&text=Financial%20services%20issuance%20expanded%2016.6,mark%20for%20the%20first%20time.


Past performance does not guarantee future returns, and individual returns are not guaranteed or warranted.

This Document is intended solely for accredited investors, sophisticated investors, professional investors, or otherwise qualified investors, as may be required by law or otherwise, and it is not intended for, and should not be used by, persons who do not meet the relevant requirements. The content provided herein is for informational purposes only and is general in nature and not targeted to any specific objective or financial need. The views and opinions expressed in this Document have been prepared by third parties and do not necessarily reflect the views and opinions of EquitiesFirst.  EquitiesFirst has not independently examined or verified the information provided herein, and no representation is made that it is accurate or complete.  Opinions and information herein are subject to change without notice.  The content provided does not constitute an offer to sell (or solicitation of an offer to purchase) any securities, investments, or any financial products (“Offer”). Any such Offer shall only be made through a relevant offering or other documentation which sets forth its material terms and conditions. Nothing contained in this Document shall constitute a recommendation, solicitation, invitation, inducement, promotion, or offer for the purchase or sale of any investment product by First Holdings, LLC or its subsidiaries (collectively, “EquitiesFirst”), nor shall this Document be construed in any way as investment, legal, or tax advice, or as a recommendation, reference, or endorsement by EquitiesFirst. You should seek independent financial advice prior to making an investment decision about a financial product.

This Document contains the intellectual property of EquitiesFirst in the United States and other countries, including, without limitation, their respective logos and other registered and unregistered trademarks and service marks. EquitiesFirst reserves all rights in and to their intellectual property contained in this Document.  The Document should not be distributed, published, reproduced or otherwise made available in whole or in part by recipients to any other person and, in particular, should not be distributed to persons in any country where such distribution may lead to a breach of any legal or regulatory requirement.

EquitiesFirst make no representation or warranty with respect to this Document and expressly disclaim any implied warranty under law. You acknowledge that EquitiesFirst is not liable under any circumstances for any direct, indirect, special, consequential, incidental, or punitive damages whatsoever, including, without limitation, any lost profits or lost opportunity, even if EquitiesFirst has been advised of the possibility of such damages.

EquitiesFirst makes the following further statements that may be applicable in the stated jurisdiction:

Australia: Equities First Holdings (Australia) Pty Ltd (ACN: 142 644 399) holds an Australian Financial Services Licence (AFSL Number: 387079). All rights reserved.

The information contained on this Document is intended for persons located in Australia only and classified as a Wholesale Client only as defined in Section 761G of the Corporations Act 2001. The distribution of information to persons outside this criteria may be restricted by law and persons who come into possession of it should seek advice and observe any such restriction.

The material contained in this Document is for information purposes only and should not be construed as an offer or solicitation or recommendation to buy or sell financial products.

The information contained in this Document is intended to be general in nature and is not personal financial product advice. Any advice contained in the Document is general advice only and has been prepared without considering your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. You should seek independent financial advice and read the relevant disclosure statements or other offer documents prior to making an investment decision about a financial product.

Hong Kong: Equities First Holdings Hong Kong Limited is licensed under the Money Lenders Ordinance (Money Lender’s Licence No. 1681/2023) and to carry on the business of dealing in securities (Type 1 licence) under the Securities and Futures Ordinance (“SFO”) (CE No. BFJ407).  This Document has not been reviewed by the Hong Kong Securities and Futures Commission. It is not intended as an offer to sell securities or a solicitation to buy any product managed or provided by Equities First Holdings Hong Kong Limited and is only intended for persons who qualify as Professional Investors under the SFO. This document is not directed to individuals or organizations for whom such offers or invitations would be unlawful or prohibited.

Korea: The foregoing is intended solely for sophisticated investors, professional investors or otherwise qualified investors who have sufficient knowledge and experience in entering into securities financing transactions.  It is not intended for, and should not be used by, persons who do not meet those criteria.  

United Kingdom: Equities First (London) Limited is authorised and regulated in the UK by the Financial Conduct Authority (“FCA”).  In the UK, this Document is only being distributed and made available to persons of the kind described in Article 19(5) (investment professionals) and Article 49(2) (high net worth companies, unincorporated associations etc.) of Part IV of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (‘’FPO’’) and any investment activity to which this presentation relates is only available to, and will only be engaged in with, such persons. Persons who do not have professional experience in matters relating to investment or who are not persons to whom Article 49 of the FPO applies should not rely on this document. This Document is only prepared for and available to persons who qualify as Professional Investors under the Markets in Financial Instruments Directive.