SME lending rises

Monday 7 September 2015

As confidence grows in the UK economy, banks are becoming more willing to lend to small to medium-sized enterprises (SMEs). The latest figures from the Bank of England show that SME lending rose in the second quarter of 2015, reflecting the wider business climate.

Overall, net lending on the part of banks involved in the Bank of England’s Funding for Lending scheme rose by £490 million between April and June. This comes in the wake of a rise of £648 million for the first quarter.

Access to finance can be a major factor in an SME’s success, particularly when it comes to expanding during times of prosperity. However, some banks can be reluctant to lend to smaller companies, as they may regard them as a higher-risk investment. Given the importance of SMEs when it comes to revitalising the economy, this is not a desirable situation for the UK as a whole.

Over recent years, difficulties in obtaining traditional bank loans have led many SMEs to look at alternative finance arrangements such as peer-to-peer lending and invoice finance. While these are becoming an increasingly established part of the small business landscape, many companies still prefer the terms of a traditional bank loan.

The Bank of England set up the Funding for Lending scheme in August 2012, as part of a government bid to boost the economy in the midst of the recession. However, it was reformed in early 2014 after concerns were raised that it was providing mortgages rather than support to SMEs.

As it currently works, the Funding for Lending scheme allows banks to borrow £5 from the Bank of England for every £1 that they lend to SMEs. Since its inception, banks have accessed £61.4 billion of Bank of England loans thanks to their provision of loans to SMEs.

Speaking to the Daily Telegraph, Irene Graham, director of business finance at the British Bankers' Association, said: "Banks are using the Funding for Lending Scheme to lower the cost of borrowing for businesses. This means that lenders are offering a range of highly competitive deals at a time when interest rates are already at a record low.”

The latest figures mark a significant improvement, as the amount of SME lending fell by a substantial £400 million during the same period in 2014. The level of change over a 12-month period suggests that business confidence has significantly improved in a relatively short amount of time.
If you are considering expanding your business, then it can help to talk to your accountant, to make sure that you have a manageable and sustainable business plan, and know what you plan to do with any loans you decide to take out.

By Victoria McDonnell

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