Posted on 01/05/2014

Credit available to SMEs continues to decline

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The amount of credit available to small and medium enterprises (SMEs) has continued to fall, despite a Bank of England survey this month claiming there’s been a sixth successive increase in the amount of available credit. This comes in spite of the Bank rethinking its Funding for Lending Scheme (FLS), which enables lenders to have access to very low rates in exchange for providing loans.

Rachel Pettigrew, a leading economist at manufacturer organisation EEF, stated that the FLS changes would ‘hopefully be another spur to the investment recovery our economy desperately needs’.

Figures not black and white
With British business confidence the highest since the 1970s, some experts argue that the figures aren’t all they seem. The director of fixed income at Scotiabank, Alan Clarke, argued that this could be partially explained by ‘firms taking advantage of cheaper sources of financing’.

“As blockages in the financial markets have cleared, firms have been able to source borrowing directly from the financial markets rather than through the banking system. So in this regard, lower business lending is actually a good sign because financial markets are returning to normal,” Clarke added.

Rising mortgages
Business levels were declining while mortgage approvals continued to rise, as the number of people with the total level of loans is currently a third higher than the average of the past four years. Though it was justified to speak of a housing bubble in the capital, an economist at HIS Global Insight, Howard Archer, said that the strength of house prices ‘is not yet a serious problem outside of the capital and housing market activity is still not unduly strong compared to long-term norms’.

Increased SME borrowing in future
The Bank of England is not alone in offering lucrative deals to banks. HSBC, for instance, recently launched a £6 billion loan to SMEs for 2014, aiming to help them with their growth goals. With business confidence at an all-time high, there will likely be increased lending in the near-future, as the banking trade association BBA said in a statement: “Low interest rates mean that the cost of finance is at an historic low, creating good borrowing conditions for businesses seeking to grow. What's more, seven out of 10 applications for business finance are approved so there's rarely been a better time to approach your bank.”