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Large companies 'defaulting on loans', warns BoE

Date Added: 06/01/2012  

Firms may need to take company debt advice over the course of the year as it appears likely business lending conditions are going to be tightened by Britain's major banks in 2012.

According to a new report from the Bank of England, large organisations are increasingly defaulting on their loans, which Simon Collins, global head of transactions and restructuring at KPMG, claimed will lead to borrowers becoming increasingly defensive.

Speaking to the Guardian, he said that is a sign of the lack of confidence in the UK's economic recovery among business leaders, adding: "For those in hope of a liquidity-fuelled recovery, today's report will disappoint ... companies of all sizes are avoiding debt, both to reduce risk and because debt is expensive."

Mr Collins noted big companies are refinancing when they feel there is no option, but they are not doing so in order to fund the mergers and acquisitions which drive the growth of the economy.

The Bank of England pointed out default rates among medium to large companies rose for the first time in two years and predicted this trend is set to continue in the coming months.

Lenders were said to be experiencing little demand for their products, which may be one of the reasons why the economy has continued to struggle from the recession and left many firms on the brink of being served with a winding up order in recent times.

Iestyn Davies, head of external affairs for the Federation of Small Businesses in Wales, recently hailed the importance of the business lending situation improving.

Speaking to the Western Mail, he said small companies have proven themselves to be the backbone of the economy in Wales and have been shown to be resilient as well.

Mr Davies added the signs suggest some Welsh businesses are looking to create jobs in 2012.

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Posted by Julie Cutts

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