Moorfields comment on BoE survey which suggests credit availability to SMEs failed to increase in Q1 2013
The Bank of England’s latest credit conditions survey has revealed that while lending to businesses increased in the first quarter of 2013, this increased availability failed to have an impact on small businesses – with SMEs reporting that there was little change in lending conditions in the first three months of the year.
While the report outlines that demand for credit decreased from both small and medium-sized business in the first quarter, it also forecasts that the second quarter is likely to see increasing demand for credit across all firms – particularly from small and large businesses.
Why was there a drop in demand?
The main reasons cited for a lack of demand from SMEs was lower capital investment, a lack of confidence in the UK’s precarious economic outlook and the belief from some lenders that ‘companies might have been discouraged from applying for credit because of a belief that lenders have a low appetite for risk.’
Commenting on the figures, Emmanouil Schizas, senior economic analyst at the Association of Chartered Certified Accountants, said:
"Once again, it's not good news for SMEs from the Bank of England as it seems that the Funding for Lending Scheme (FLS) is improving access to nearly every type of finance except loans to small businesses".
Downward trend continues
The BoE survey also highlighted that tighter spreads for small businesses have been reported since the question was first posed in the fourth quarter of 2009. This reflects the findings of the Q1 Federation of Small Businesses’ Voice of Small Business Index, which also revealed that the cost of credit for small businesses has been on a recent downward trend.
Despite the introduction of the government’s Funding for Lending Scheme (FLS), which was designed to free up the flow of credit to smaller firms and consumers by offering bank loans at lower than available commercial rates, it appears that SMEs are still struggling to secure the finance they need.
If your business is struggling in the current climate, you may want to consider seeking professional advice on company insolvency options. At Moorfields, we can provide leadership to companies who find themselves in financially distressed situations.