Banks admit to pushing small business bank accounts

Financial services providers have recently admitted to pushing small business bank accounts to buy more expensive alternatives to business loans as lending rates fell by 3 per cent in February.

After releasing its quarterly Trends in Lending survey, the Bank of England revealed that small and medium businesses have been moved away from overdraft facilities and instead steered towards more expensive credit lines across the industry.  Major lenders in the UK reported they were in search of ways to develop awareness of alternatives to traditional business lending, said the Bank.

Lenders have been pushing such activities as invoice finance or leasing among their small business client base, according to the Bank.  Additionally High Street lenders also admitted that the number of loan applications being received by firms with sales of £25 million or less have been negative at worst and flat at best over the past half year.

After submitting data to the Business Department, lenders have been demonstrating that those firms that have decided to apply for business loans are in search of a significantly reduced quantity of money than they did the preceding year.  The BoE stated that application values for new term overdraft and loan facilities in the half year preceding February 2011 was operating at a rate 19 per cent reduced for the same period of time last year.

The Bank said that some lenders reported that many small and medium sized businesses were expressing caution in regards to business prospects, which has led to a reduction in credit demand.

Businesses with £1 million or less in yearly sales was shown to have suffered a decline of 6 per cent in new lending activity as well according to the British Bankers’ Association.

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