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The impact of the Bank of England credit conditions on SMEs

POSTED: 21st January 2014
IN: Business news
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Lending to small businesses increased in the final quarter of 2013 indicating that tight credit conditions are beginning to ease for SMEs, according to the latest Bank of England quarterly credit conditions survey.

Lending to small businesses increased in the final quarter of 2013 indicating that tight credit conditions are beginning to ease for SMEs, according to the latest Bank of England quarterly credit conditions survey.

 undefinedThe Bank reported that the net balance of lenders reporting increased credit availability for small businesses was the second highest since the question was first asked in the fourth quarter of 2009.

 Lenders also reported that the proportion of loan applications from small businesses being approved had risen for the fourth consecutive quarter.

Overall, spreads on corporate lending tightened significantly in the period but only marginally for small businesses.

The share of loans to small businesses being approved by banks and building societies went up for the fourth quarter in a row.

The Bank said that for all businesses credit availability increased significantly in the final quarter of 2013 helped by improvements in the economic outlook and competition from capital markets. The Bank of England expects this trend to continue in the opening quarter of 2013.

Demand for credit from SMEs was unchanged in the quarter after two consecutive increases but demand for credit from medium-sized businesses increased significantly.

Smaller firms may be waiting for further improvements in the economy before committing to major capital spending.

Lenders expect demand to increase across all firm sizes in the next quarter, with significant increases from small firms.

Dr Howard Archer, Chief UK Economist at IHS Global said: “Importantly, credit availability was reported to have increased for smaller companies as well as for larger ones.

 “There is evidence that firms are now looking to step up their borrowing as markedly improved economic activity in recent months lifts their confidence and need for capital.”

The Bank of England will hope that its ending of the Funding for Lending Scheme for residential households to focus on lending to businesses will help this trend accelerate.

However, Mr Archer added that the cost of loans is still an issue for SMEs as the cost has barely moved compared to falling credit spreads for larger firms.

He said: “Increased credit availability to corporates is yet to be reflected in the hard lending data.”

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