Small business bank account loan demand falls first quarter

According to a recent credit conditions survey conducted by the Bank of England small business bank account demand for lending declined sharply in the first quarter of 2011.

Business loan providers declared that the decline could be attributed to weather-related and seasonal factors.  Heightened levels of uncertainty preceding the government’s spending cuts also played a factor, lenders said.

Throughout the period in question however the availability of venture capital to small and medium-sized firms was relatively stable, the BoE survey found.

In light of the new survey results financial service providers stated that they had expectations for a slight increase in credit availability for small businesses in the second quarter.  For the lenders’ purposes, small businesses are characterised with annual turnover rates not exceeding £1 million.

Finance providers’ margins on small business lending was also found to have risen in line with BoE expectations. The next three months will bring further increases as well, the report predicted.  Lenders attributed the increase to a rise in their own costs of operation.  The Bank additionally discovered that commissions and fees on lending to small businesses also underwent a slight increase as well.

The survey also found evidence that there was a rise in the rates of default on loans made to small businesses during the past three months.  Many lenders have cited that the creditworthiness assessments of borrowers has begun to deteriorate.  Additional blame was placed on the possibility of economic weakening in the broader sense as well.

When asked if the trend would continue unabated, many lenders agreed by stating that they had an expectation that the next three months would see additional defaults taking place.

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