Lending to SME's fell in 4th quarter reports Bank of England
Lending to small and medium-sized enterprises (SMEs) in the UK has continued to contract, according to new figures from the Bank of England.
The annual growth rate of business lending was negative for the three months leading up to November 2011 and secured lending to households fared little better - with levels remaining almost static during the three-month period.
Challenging conditions in the wholesale markets was partly to blame for the situation, which were pushing up the cost of lending for businesses.
Howard Archer, Chief UK & European Economist for IHS Global Insight said: “The Bank of England’s Quarterly Trends in Lending Report for January fuels concern that tight credit conditions pose an increasing threat to economic activity over the coming months.
“The survey also fuels concern that banks’ future ability to lend to companies could be hit by difficult wholesale funding conditions. Specifically, the report comments that “Conditions in longer-term wholesale funding markets were challenging in 2011 Q4, according to the major UK lenders. In recent discussions, most major UK lenders reported that higher wholesale bank funding costs were feeding through somewhat to loan pricing on new business for some corporates.”
In its Q4 Credit Conditions Survey, businesses continued to report difficulties accessing credit and overall, demand was subdued.
David Birne, a business recovery specialist at the chartered accountants HW Fisher & Company, said: "As today's starkly gloomy figures attest, levels of bank lending to SMEs are still measly."
"Far too many viable businesses are being denied access to potentially lifesaving credit because of the banks' "computer says no" attitude," he added.
He claimed that while banks are not expected to lend to unviable businesses, they are holding off lending to perfectly sustainable companies that need additional capital.
"Many businesses with cashflow problems are being forced to take desperate measures - either taking out high interest short-term loans, or giving away stakes in the company in return for cash," he noted.
However, many banks have denied that they are simply not lending to small businesses.
John Maltby, group director of commercial at Lloyds Banking Group, said that his organisation was bucking the wider UK trend when it came to lending.
He noted that while lending was, on the whole, in decline, Lloyds had stepped up to the plate and increased finance provision to SMEs by two per cent - lending £9.6 billion to firms in the first nine months of the current financial year.
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