BOEs Q4 2011 credit conditions survey reported banks seeing a
sharp fall in loan demand from small businesses. About as
surprising as telling us that there is a sale at DFS. Comment from
the Federation of Small Businesses hints at why demand for loans is
so low; nearly a quarter of its 200,000 members fear their
application would be rejected or the loan terms would be too
onerous.
Too onerous indeed. The same Bank of England report tells us the
cost of lending increased for businesses big and small. Little
wonder then that business has lost its appetite for loans.
Companies across the spectrum are avoiding debt because of the cost
and because lack of confidence makes them risk averse.
The survey provides precious little optimism for SMEs in this
new quarter with loan costs rising and credit scoring criteria
tightening. To SMEs, bank loan policy must seem akin to providing
umbrellas when the sun shines and taking them back when it rains.
And right now the economic rain is torrential. The survey was too
early to report the impact of the government's autumn credit easing
so we'll have to wait to see if this improves things.
This week it's expected that the Bank of England's Monetary
Policy Committee will announce yet more quantitative easing (QE)
and push it up to around 25% of GDP. With big companies sitting on
a mountain of cash it's difficult for me to see why additional QE
should alter their strategy and tempt them to invest.
Deloitte's finance director survey confirms this view with 87%
of FDs believing this is a bad time to be taking additional risk
onto their balance sheet as their major priority for 2012 is to
reduce costs and increase cash flow.
