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Business lending 'particularly difficult to obtain'

Date Added: 07/02/2012  

Lending to small to medium-sized business is set to contract in the coming months, according to a new report released by Ernst & Young.

The body found corporate loans will come down by more than five per cent, which could make it difficult for firms in need of company debt advice to access loans from banks.

Neil Blake, senior economic adviser to the Ernst & Young ITEM Club, stated the organisation has been issuing warnings about the business lending situation in the UK for some time.

However, he noted it will be the first time there has been a contraction in the amount of money being lent to small businesses since 2009, with the Project Merlin agreement between the UK's major banks and the coalition government making a difference in the last couple of years.

Mr Blake said: "Funding for small and medium-sized enterprises is likely to be particularly difficult to obtain as banks seek to reduce credit risk. The average interest rate on smaller loans, of £1 million or less, is already double that charged on loans of £20 million or more, and we expect this trend to continue."

He pointed out young companies expanding quickly is what helps the economy to grow and if firms of this type are not able to access loans as a result of problems with the business lending situation, it could mean the economic recovery in the UK is harmed as a result.

It was also noted the trend towards individuals and companies being forced to use alternative lenders due to the fact banks are not approving loans is set to continue in the coming months.

This comes shortly after shadow minister for small business Toby Perkins claimed the coalition government has failed in the area of business lending, despite the success of Project Merlin, with the MP noting the flow of credit to small and medium-sized enterprises is not improving.

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Posted by Michael Beam 

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