Lending to businesses has grown – but put the champagne on hold for now

posted on 31/07/2013 10:17:22 by Dan O'Sullivan

Lending to SMEs increased by £238m between May and June, but does this tell the whole story about growth finance? We look at the bigger picture.

Boom or gloom? The latest figures from the Bank Of England show an upturn in lending to businesses - but is this a sign of real change?

After years of struggling to access finance it seems Britain's SMEs are finally set to see a turnaround in their fortunes. Bank of England figures have revealed more money is being pumped into the market, so surely the only way is up for the nation's businesses?

Well, there are a few ways of looking at it.

It's undoubtedly positive news that the government bank has announced a £238 million rise in lending to small businesses between May and June. Businesses have long been calling for greater support from the banks, and if this is increasingly forthcoming then many smaller firms should find themselves in a stronger position.

Reversing the trend

However, when you consider that this increase was not enough to negate the £476 million plummet in lending seen during the preceding month, it's clear that it's not time to start jumping for joy just yet. Moreover, the average decrease in lending - according to statistics from the same source - has been around £500 million a month for the previous six months.

A report from the British Bankers' Association (BBA) detailing a decline in lending between 2011 and 2012 brings more gloom to an apparently rosy picture. These figures show that lending fell in 80% of the UK's 120 postcode areas during this timeframe, with only 22 towns and cities seeing a rise in financial support being awarded to their SMEs.

When the finance waters are this murky, the most reliable source of information is surely businesses themselves - the FSB has reiterated that 50% of its members are being refused credit

Still, this hasn't stopped BAA chief executive Anthony Browne going on an unabashed charm offensive with a dose of understated euphoria in his regular piece for City AM. Mr Browne flags up the fact that alongside the decline in lending, more SMEs have been building up savings and deposits while at the same time paying off their debt. He refers to the small business sector as "strikingly healthy" and praises firms that are building their cash reserves.

Is he evading the main issue or is there a significant sub-plot to consider in this debate?

From the horse's mouth

When the finance waters are this murky, the most reliable source of information is surely businesses themselves. In response to recent optimistic headlines, the Federation of Small Businesses (FSB) has reiterated that 50% of its members are being refused credit. The fact that 60% think finance is unaffordable underlines the sense that things can't really be all rainbows and butterflies out there.

These statistics are the most compelling. If, as we and the FSB believe, SMEs are the foundation upon which the nation's economy is built, then the percentages clearly need to improve if our businesses are to flourish and real economic growth is to be achieved.

The recent improvement is undoubtedly encouraging, but it doesn't mean the debate should be brushed aside. What's your perspective? Let me know in the comments section. Or, if you're a business owner who's applied for finance recently, tell us about your experience.

Image credit: den99

Dan O'Sullivan

Dan O’Sullivan is Make It Cheaper's Web Content Manager, which means much of his time is dedicated to ensuring we have plenty of online material to help business owners understand the energy, insurance and telecoms industries. With years of experience working alongside SMEs, Dan is committed to making life as easy as possible for smaller firms. You can email Dan at dan.osullivan@makeitcheaper.com

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