Lending to British businesses falls by £4.8m

Funding for Lending? No Funding for Spending, more like. The Bank of England has revealed that lending to businesses in the UK has fallen by £4.8bn in the three months to February.

by Rebecca Burn-Callander

Bad news on the lending front for small and medium-sized British businesses. The value of loans to UK companies has fallen 4.4% on the same quarter last year, according to the BoE's latest Trends in Lending survey.

Despite the government's Funding for Lending scheme, which reduces borrowing costs for small businesses, demand for loans has fallen 'significantly', says the Bank. Small firms are instead choosing to 'reduce debts or build cash reserves' rather than borrow cash and expand. Big companies, however, are still borrowing, presumably because their larger, diversified portfolios make accessing credit less risky.

'Within the corporate sector, demand for credit from small businesses decreased significantly, reduced slightly for medium-sized companies, and was broadly unchanged for large companies,' the Bank said this morning.

And small firms are unlikely to be coming to the banks, cap in hand, any time soon. 'Looking forward, lenders in the Credit Conditions Survey expected credit availability for small and medium-sized firms to be little changed in the coming quarter, although availability for large companies was expected to increase further,' says the report.

However, while businesses are battening down the hatches, mortgages are hot property, up 0.7% quarter on quarter, says the bank. This paints an interesting picture of the appetite for lending in the UK: people are happy to borrow to buy a house but the state of the global economy is dissuading firms from investing in their businesses.

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