Business lending channels “damaged”

Johnson Reed
2m read

Last month, the British Chamber of Commerce (BCC) released a statement claiming that the business lending channels were “damaged”, amidst reports that the net business lending fell by almost £2bn in December 2013, and drew stark comparison to the difference in interest rates offered to big corporations and small businesses.

Net lending to non-financial firms declined £1.9bn in December, following an even larger drop of £4.6bn in November, which happened to be the largest fall since records were kept in 2011. The lending to SMEs fared nearly as badly, by dropping £1.2bn.

The decline comes in spite of a Bank of England statement saying business lending had seen a “significant increase” in the first quarter of 2013, and had promised an even larger one in 2014.

The cost of borrowing on loans above £20m had fallen by 0.59 percentage points throughout 2013, however the average rate on loans up to £1m (the typical lending bracket for SMEs) had risen by 0.04 percentage points, raising fear about less than preferential treatment to SMEs, the lifeblood of the UK’s economy.

The Director General of the BCC told the Government that they needed to “turbo-charge” the lending market:

These lending figures are hugely disappointing, and show that our business finance system remains damaged,” he said. “It is very concerning that young, fast-growing businesses are becoming increasingly disillusioned with the current lending system, as they are the firms who are finding it hardest to secure finance.

It is clear that only a fully-loaded Business Bank will plug the long-term structural gap in business finance.