Figures reveal lending to firms continues to fall

LENDING to UK companies slumped in February to its lowest in almost two years, new figures show.

Net loans to businesses from UK banks and building societies decreased by £9.2bn in the three months to February, according to the Bank of England’s Trends in Lending report.

In February alone net lending to companies shrunk by £4bn, the BoE said, as companies pay down debt faster than they borrow.

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Growth in lending to small and medium-sized enterprises (SMEs) has remained negative since late 2009, the report added, reflecting about two-and-a-half years of dwindling credit for SMEs.

The sharp withdrawal of funds from UK businesses will heap pressure on banks and the Government to increase the flow of credit to companies to help boost the economy.

“The stock of lending to small and medium-sized enterprises continued to contract,” said the report.

“Lending growth for all SMEs has been negative since late 2009 and has been below that for private non-financial corporations as a whole since March 2011.”

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The BoE’s figures show lending to SMEs has failed to grow in any month since September 2009. Lending to SMEs in February was down 3.9 per cent, it added.

Neville Martin, development manager for the Federation of Small Businesses in South and East Yorkshire, said the BoE’s figures reflect tough conditions for its members.

“Bank lending to small firms is in freefall,” he said. “Nothing we do or say seems to make any difference at all.

“The banks seem to be a law unto themselves despite all the lobbying and campaigning.

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“The demand is still there. But small firms are so accustomed to getting the knock-back when they go seeking finance that they just don’t bother.

“Some of the smallest companies are borrowing money on credit cards and from friends and family just to pay the bills and keep the doors open. It’s an atrocious situation.

“The only option is for the Government to open up access to different forms of funding.”

The BoE’s report said capital markets continue to provide an alternative source of funding for larger companies.

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It said with bank lending negative in many sectors, bond issuance was positive across most major industrial sectors, including utilities, manufacturing and mining.

A spokesman for the British Bankers’ Association said: “Banks are continuing to lend to good, viable businesses that can demonstrate the ability to repay any borrowing and to meet their existing financial commitments.

“At the same time, businesses are choosing to repay existing borrowing at an even greater rate which results in a net decrease in the total amount of borrowing outstanding.”

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