Business confidence could be a key factor in falling lending figures
A number of reports released in August have added fuel to the argument that banks are maintaining a cautious approach to lending, particularly to small businesses.
The latest report on credit trends from the Bank of England shows that net monthly lending to businesses fell again in June for the eighth consecutive quarter, with a 12-month growth rate of -8.1 per cent. In addition, a damning report from the Institute of Chartered Accountants in England and Wales (ICAEW) says many small businesses are still unable to borrow from banks due to restrictive lending criteria.
The National Association of Commercial Finance Brokers (NACFB) also revealed in a report published in August, that the number of commercial lenders and the level of borrowing from these lenders had halved since the mid-2000s.
What is clear is that businesses are making repayments on existing loans and not borrowing. It has been argued, rationally, that access to finance is the key concern for these businesses, yet Andrew Bullard, head of business at specialist invoice finance broker Cashflow UK, highlights other key factors which are having a serious impact on the level of borrowing by UK firms:
“Business confidence has taken a knock as the level of company insolvencies continues to be relatively high, and fears of a double dip recession have yet to be alleviated. The latest Business Confidence Monitor from the ICAEW shows that the proportion of firms saying they are less confident about the future has risen to almost a fifth (19 per cent), and as things stand currently these businesses lack the confidence to borrow and are focusing solely on consolidating their existing debt.”
“Whilst we applaud the Government’s proposals to tax those banks that don’t meet lending targets, there are two sides to the coin. Both the banks and small businesses have an important role to play as we look to generate growth in the economy, and these businesses should be looking to borrow before the Government raises interest rates again.”
The NACFB’s report said the biggest growth area of lending had come from ‘factor invoicing’, and Mr Bullard argues that this is indicative of the changing state of the commercial finance market:
“Businesses are increasingly looking beyond ‘traditional’ funding options, such as bank loans and overdrafts, and starting to realise the wealth of additional options available to them. Increasingly seen as more flexible and accessible forms of business finance, solutions such as factoring and invoice discounting are growing in popularity as more businesses discover they are credible options, with far less restrictive lending criteria.”
“Education is key, and I would urge the Government, intermediaries, and indeed the banks to ensure that those small businesses looking for funding are made aware of every possible option.”
