Funding still hard to access for limited companies, BoE figures suggest

Monday 7 April 2014

Credit conditions are still likely to be tough for limited companies, with the latest Bank of England (BoE) figures showing that while demand for finance is up, availability is relatively weak.

Credit availability for small businesses improved just slightly in the first quarter of the year, according to the 'Credit Conditions Survey'.

Nick Dodd, debt advisory director at KPMG, explained that the strengthening economy and improved liquidity hasn't necessarily translated to the ease of which companies can secure finance.

However, more and more small businesses are looking to capitalise on the current environment,

"The latest findings show an increasing demand for finance from SMEs (small to medium-sized enterprises), which is a consequence of the economy improving and more businesses looking to fund growth through increased capital expenditure and working capital investment programmes," Mr Dodd said.

Broadly, tighter prices and relaxation of terms has been noted, thanks to strong competition. However, the lack of experience in engaging with lenders on behalf of small businesses is still proving to be a stumbling block.

"We are starting to see an increase in transactional activity which is taking up some slack in the supply of credit but not yet making a real impact on overall availability," Mr Dodd stated.  "There are SME borrowers which continue to find it hard to access funding outside of the traditional high street bank model, and are not familiar with the emerging alternative lenders."

Conditions may change, however, as alternative finance firms raise their profile and the government takes steps to encourage businesses to pursue this line of credit.

Chancellor George Osborne last week launched a consultation on proposals to make it easier for SMEs to find alternative loan providers when they have been rejected for a loan by the banks.

The new plans suggest legislating to require banks to release information about small companies they reject for finance to alternative lenders so they can be approached by alternative credit providers.

It is believed this will lead to the creation of online platforms that enable lenders to find SMEs looking for finance.

Currently, over half of small business that try to secure a loan with a big bank get turned away on their first attempt and often don't try again.

This means the UK often misses out on new businesses that could play a big role in strengthening the economy.

Mr Osborne claims that SMEs are a key tenet of the government's long-term economic plan, but they need to be able to access finance to grow and create jobs.

Consequently, the government needs to support alternative forms of lending, such as peer-to-peer.

This will ensure that when a big bank says no, it isn't the end of the line for small businesses.

The Federation of Small Business claims the new measures will help to increase competition in the market and force lenders to take on more risk.

With corporate lending conditions improving, the market is certainly taking the right steps to achieving this. The availability of lending to bigger business comprises around 40 per cent of bank loans and increased in the first quarter of the year. This is expected to grow further in Q2.

By Victoria McDonnell

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