Lending to small business shows no sign of increasing

Figures from the Bank of England show no improvement in business lending as chairman for British Business Bank named.

by Gabriella Griffith
Last Updated: 17 Jan 2014
It’s just the news that Vince Cable didn’t want to see today – according to the Bank of England, lending to small businesses in still in decline. Total lending by all UK banks and building societies contracted by £2.3bn in the three months to August. The annual rate of growth in business lending has not budged, still at 0.6%.

Lending to small businesses represented around 35% of the total lending by banks. Somewhat predictably, the real-estate sector took the lion’s share of this small business lending – with the housing sector continuing to froth like a pint of ale in Wetherspoons. And, just as the last time the Bank of England released its results, repayments being made by small businesses are higher than the total being lent out – the money simply isn’t flowing back out of financial businesses.
 
Small businesses weren’t the only ones bearing the brunt of the negative rates on lending; the contraction was seen across enterprises of all sizes. The big boys can’t put their hands on cash either.

Released this morning, the Trends in Lending report by the Bank of England has revealed net lending since the start of the government’s ‘carrot and stick’ Funding for Lending Scheme – has remained broadly flat. In other words, it has hitherto failed.
 
‘The fact that lending to business contracted by more than £2bn over the three months to August is a genuine cause for concern,’ said John Hoskin, director of small business accountants CleverAccounts.com.
 
‘As ever, and reflecting the ongoing conservatism of the banks, SMEs are still finding it harder to secure funds from the banks. While SMEs can now turn to alternative forms of finance, they still have fewer options than larger companies, who can always go cap in hand to the capital markets or consider asset-based finance.’
 
Alternative finance routes such as crowdfunding are continuing to pick up the slack from the bigger banks. Figures from Funding Circle, also released today, have shown a 30% increase in lending to small businesses on the platform.
 
Challenger banks too are taking their opportunity to make their voices heard – offering businesses another way of accessing finance than going to one of the more established financial behemoths.
 
‘These figures will come as no surprise to many of our SME customers,’ said Ian Henderson, chief executive of Shawbrook bank.
 
‘We’re still seeing significant demand from credit-worthy small businesses who are struggling to secure credit from the high street, despite being in a strong position to grow.’

Want to hear more from Henderson? Look out for our exclusive interview next week.
 
Business secretary Vince Cable is no doubt reaching for the paracetamol this morning, as business lending continues to give him a massive headache. A marked difference from yesterday when Cable would have been riding high on the promise of potential lending, as he announced the name of the chairman for the new state-backed British Business Bank.
 
Ex-banker Ron Emerson was named as chairman of the new body, which has been designed to support lending to small and medium sized firms. The bank aims to hand over £10bn in the next five years.
 
‘I'm really looking forward to this,’ said Emerson.
 
‘It's a seriously important and interesting idea. The ability to stimulate (small and medium sized businesses) and provide a more effective set of financing solutions could have a dramatic effect.’
 
Yes, indeed it could. But, as fellow initiative Funding for Lending shows us all – it could also fall flat on its face.

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