Threadneedle St 'Taliban' backtracks as SME funding gets a rise

Figures show lending is on the rise and the Bank of England loosens capital requirements

by Gabriella Griffith
Last Updated: 18 Oct 2013
There’s yet another glimmer of good news for the UK’s businesses this morning; external funding, ie. loans, investment and grants, for small and medium businesses is on the rise. According to the SME Finance Monitor from research company, BDRC, 44% of small businesses reported using external finance in the second quarter, up from 39% in the first.
 
The news comes after Mark Carney yesterday announced he would let the UK’s ‘safest institutions’ move away from a focus on capital requirements and divert resources into business credit. Banks with a capital base equal to 7% of their risk-weighted assets will be eligible to take advantage of the new scheme.
 
This could give bank lending a boost of up to £90bn and could see Vince Cable to backtrack on his Threadneedle Street ‘Taliban’ diatribe, in which he accused the Bank of England’s tough capital requirements of curbing lending levels.
 
The move couldn’t have come soon enough. The figures from the SME Finance Monitor found the rise in small businesses funding has had little to do with bank lending. Using loans, credit cards and overdrafts has remained flat at 33%, it’s the use of the alternative external funding forms of leasing, invoice discounting, grants and loans from directors, which have increased.
 
The monitor also found a third of businesses looking for finance, won’t even consider going to their banks, as they expect to be turned down. It’s no great surprise in the week that saw Nationwide delay its small business lending plans until 2016.
 
The funding rise may not be coming from our friendly neighbourhood banks but any funding is good news for cash strapped businesses in need of growth. And it’s good news on that front also, 44% of the small businesses surveyed reported they had grown in the past 12 months, up from 39% in the first quarter and 51% expected further growth, up from 48%.
 
‘More SMEs are expecting to grow, and use of external finance increased in Q2,’ said Shiona Davies, director at BDRC Continental.
 
‘The latest data suggests that SMEs are expanding their use of ‘non-core’ sources of external finance, including an increasing awareness of crowd funding.’
 
Awareness of the governments’ ‘carrot and stick’ Funding for Lending scheme, which has been devised to spur banks to lend to businesses, has risen to 29% from 23%. Crowd funding also got a boost in recognition, 22% of the small businesses surveyed understood what it was, up from 18% during the previous quarter.
 
‘It's good news that more small and medium-sized firms are getting finance to help them grow and that they are looking at the broad range of options available on the market, including crowd funding and invoice factoring,’ said Matthew Fell, CBI director for Competitive Markets.
 
‘Most smaller firms are still not actively looking to borrow money at the moment but this is likely to pick up gradually turnaround as the economy continues to gather momentum and confidence builds.’
 
Rather than signalling an increase in lending from banks, which is sorely needed, the evidence points to an increase in creativity from our small businesses. We’ll have to wait and see if the new liquidity rules from the Bank of England have an effect on this. It might not be time for Vince to jump down from his soapbox just yet.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today