According to data released by the Bank of England, lending to UK Small and Medium Enterprises has continued to decline. The figures for the fourth quarter reveal a negative growth rate for business lending, with levels of secured loans to households remaining static during the same quarter.
The cost of business lending has increased, which is due to the wholesale market’s difficult conditions. The Chief UK and European Economist for HIS Global Insight, Howard Archer 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.”
Archer further commented that the report fuelled concern that difficult conditions for wholesale funding may impact on the bank’s ability to lend to businesses in the future. The higher cost of business loans experienced by a number of companies is a reflection of the difficult conditions.
According to the Credit Conditions Survey for the fourth quarter, demand for credit has slowed while businesses are reporting continued difficulty obtaining credit. Although it isn’t feasible to lend to unviable businesses, a number of viable businesses are being refused credit and are forced to resort to short term loans which have much higher interest rates, or selling company shares. However, a number of banks deny that they aren’t lending to businesses, while Lloyds report increased lending to SMEs of two percent, with £9.6 being loaned to companies in the first three quarters of the financial year.
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