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BCC: Lending figures show ‘damage’ to business finance system

Date Added: 06/02/2014  

The fact that business lending fell in December is further evidence that corporate funding channels are “damaged”, according to some business groups.

Figures from the Bank of England (BoE) reveal that net lending to non-financial firms declined by £1.9 billion in the last month of 2013, following November's sharp drop of £4.6 billion - the biggest fall since the records began in 2011. 

BoE data also showed net lending to small and medium-sized enterprises (SMEs) fell by £1.2 billion, after increasing by £165 million in November.

The fall in lending happened in spite of a separate report released by the bank earlier this month, which described a “significant” increase in credit availability to businesses in the final three months of the 2013, with further rises expected this year.

A widening disparity between interest rates offered to big corporations and small businesses was evidenced in the data. According to the report, the average interest rate on new business loans fell by 0.27 percentage points in December to 2.2 per cent.

However, while borrowing costs for loans above £20 million have fallen by 0.59 percentage points over the past year, the average rate on loans of up to £1 million has risen by 0.04 percentage points. 

This revelation caused Michael Saunders, chief UK economist at Citigroup, to declare: “SME credit remains something of a worry.”

John Longworth, director general of the British Chambers of Commerce (BCC), called on the government to do more to "turbo-charge" the business 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.”

He said that it was obvious that only “a fully-loaded Business Bank” will plug the long-term structural gap in business finance.

“The current proposals must be turbo-charged to bring greater ambition to the current government proposals,” Mr Longworth concluded.

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