‘Recovery at risk from banks’ reluctance to lend to small business’ warns broker

7th October 2014

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Banks unwillingness to lend to small businesses is in “grave danger” of choking off the recovery, a corporate finance broker has warned.

The latest Bank of England credit conditions survey found that lending to businesses remained unchanged in the third quarter, but the availability of credit to small firms shrank.

Matthew Fell, CBI director for competitive markets, said:“It’s encouraging that demand for credit among the UK’s medium-sized firms is going up and costs are coming down, which will help to underpin investment.

“But credit conditions remain more of a challenge for small firms and signs of weakening demand are concerning. To maintain momentum in the recovery, the Government should continue to do more to increase appetite for funding, including boosting alternative finance sources.”

Meanwhile, Ian Currie, director of the corporate finance advisors Seneca Partners goes further still. He said: “The banks’ reluctance to lend to small businesses began as a hindrance to economic growth, but is now morphing into a real threat.

“The reason is the striking imbalance between the banks’ attitude to business and personal lending.

“Just as lending conditions for consumers relax further, they are being wound ever tighter for small businesses. The tension created as these two trends pull in opposite directions will soon reach breaking point.”

Currie said he can understand why banks prefer to lend to consumers than small businesses as their risk profile is easier to assess by computer, while lenders no longer have the manpower to make the  difficult decisions involved in funding small firms.

He said that personal loans and loans to big business are getting cheaper, while loan rates for small companies are staying stubbornly high.

Currie said: “Government initiatives like the Funding for Lending Scheme have so far failed to unblock this essential credit pipeline, and there’s a grave danger that Britain’s economic recovery will be choked off when the country’s army of small businesses cannot expand to meet growing demand.”

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