Business lending collapses by £3bn, says Bank of England

According to the Bank of England’s latest Trends in Lending report, there was £3 billion less disbursed in business loans from March to May of this year.

Small business bank account holders were much less likely to receive a loan from a high street lender as well during this period of time, the Bank said, despite the fact that demand for working capital increased. Loan repayments made by SMEs have been higher than new lending for the last four quarters consecutively, according to the BoE’s figures.

Debt funding costs for SMEs was found to have gone up as well during the quarter, the Trends in Lending report found, even though credit availability has remained unchanged.  However, bank agents reported that smaller regional businesses still were quite often unsuccessful in loan applications, causing an overall 3.1 per cent contraction in lending in comparison to 2011’s figures.

SME demand for lending has increased, the Bank found, even in the face of retail lenders insisting that demand has been ‘subdued’ when it came to smaller companies. The Federation of Small Businesses agrees with the BoE, remarking that its own independent research indicates that 60 per cent of SMEs both want to expand and need a loan in order to do so.  The FSB’s chairman, John Walker, said that high street banks are making excuses to hoard their capital by making suggestions that small firms have no desire to borrow.

The only thing that can break such n impasse is broader competition in the retail banking sector, Mr Walker said. He welcomed the recent announcement that more than 600 Lloyds TSB branches are changing hands, with the Co-op taking the reins.

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