According to the Bank of England’s recently published ‘Trends in Lending’ report, business lending fell by £4.8bn between December and February and by £2.8bn in February alone!
This has had an adverse affect on the business finance strategy of many businesses, and continues to be a real concern for the future of the UK economy.
The report makes four points:
1. The annual rate of growth in lending to UK businesses was negative in the three months to February. Lending to both small and medium-sized enterprises and large businesses also contracted over this period.
2. According to the Bank of England’s 2013 Q1 Credit Conditions Survey, spreads on new lending fell for small businesses and fell significantly for large and medium-sized businesses.
3. Availability of credit was little changed for small and medium-sized firms and increased for large companies in 2013 Q1, according to respondents to the Credit Conditions Survey.
4. In recent discussions, most major UK lenders reported that demand for credit from businesses was mixed across corporate sectors.
I would ask the question: if 2 & 3 above are correct, why is less money being lent to businesses? The report seems to be blaming this on lack of demand. Is this a lack of demand from the Blue Chip companies the banks would like to lend to, or a reduced demand from any business that has some issues and therefore has not applied on the basis that they are likely to be declined?!
Here are some further extracts from the report that are interesting reading:
Lending to UK businesses
The annual rate of growth in the stock of lending to UK businesses was negative in the three months to February. The stock of lending to both small and medium-sized enterprises and large businesses also contracted over this period. The annual rate of growth in the stock of secured lending to individuals was broadly unchanged. Mortgage approvals by all UK-resident mortgage lenders for house purchase fell slightly in the three months to February. Total net consumer credit flows were positive over this period.
Table 1A Lending to UK businesses
| Averages |
| 2012 | 2013 | 2013 | ||||||||
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2012 | Dec | Jan | Feb | |
| Q4 | ||||||||||
| Net monthly flow
(£billions) |
7.4 | 3.8 | -3.9 | 2.1 | -0.8 | -1.5 | -1.3 | -1.7 | -0.3 | -2.8 |
| Three-month annualised
growth rate (per cent) |
20.9 | 10.7 | -7.7 | -5.2 | -2.0 | -3.7 | -3.4 | -3.6 | -4.0 | -4.4 |
| Twelve-month growth rate
(per cent) |
16.8 | 17.9 | -1.8 | -7.1 | -3.3 | -3.1 | -3.7 | -4.0 | -3.3 | -3.1 |
The annual rate of corporate lending growth was negative in the three months to February.
Data from participants in the Funding for Lending Scheme indicated that their overall net lending to UK households and private non-financial corporations (PNFCs) was negative in 2012 H2, albeit not seasonally adjusted. Within this, there were diverse lending outcomes across different lenders.
The industrial breakdown of corporate lending indicated that the decline in the stock of lending in 2012 was broad based across sectors.
For more details, see ‘Funding for Lending Scheme — Usage and lending data’.
Gross lending by all UK-resident banks and building societies to all major industrial sectors was lower in 2012 H2 compared to the same period a year earlier. Repayments by businesses in many sectors also declined though were higher than gross lending. Net lending — defined as gross lending minus repayments — was negative for most sectors in 2012.
Notwithstanding the recent weakness of bank lending, respondents indicated that they still viewed bank borrowing as an ‘attractive’ source of finance.
Loan Pricing
Spreads over reference rates on new lending to medium-sized and large businesses fell significantly for the second consecutive quarter in 2013 Q1, according to the Bank of England’s Credit Conditions Survey. Some lenders in the survey commented that the reduction in spreads reflected an increase in competition and the impact of the FLS.
Spreads over reference rates on new lending to small businesses fell in 2013 Q1, according to respondents to the Credit Conditions Survey. This was the first time that respondents reported tighter spreads for small businesses since the introduction of this question in 2009 Q4. Fees and commissions were reported by respondents to have risen slightly in 2013 Q1. Indicative median interest rates and spreads on new variable-rate facilities to all small and medium-sized enterprises (SMEs) have been broadly stable in recent months, according to survey data from the Department for Business, Innovation and Skills.
In recent discussions, some major UK lenders reported that the FLS had led to some downward pressure on pricing for smaller businesses.
Credit supply and demand
Lenders in the Credit Conditions Survey reported that credit availability was little changed for small and medium-sized firms in 2013 Q1. Contacts of the Bank’s Agents reported that availability of credit had not improved for the smallest firms.
A recent study by the National Institute of Economic and Social Research indicated that, over a longer term, there was evidence of ongoing tight credit conditions for small and medium-sized enterprises in 2010–12. Looking forward, lenders in the Credit Conditions Survey expected credit availability for small and medium-sized firms to be little changed in the coming quarter, although availability for large companies was expected to increase further.
Finding alternative funding
If the continuing lack of availability of funding is affecting your business, please contact us. We are specialists in this field and should be able to point you in the right direction. Notwithstanding this gloomy report, there is a lot of funding available; you just need to know where to find it.
As always, if you have any comments or any of your own experience you would like to share on this subject, please contact me at john.thompson@transcapital.co.uk or on 0845 689 8750.
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