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Business lending plummets by £2.5bn

London, UK (25/07/2011)

LONDON (Management Today) Bank lending to businesses fell substantially again in June. Although banks are, as usual, keen to point out it's not entirely their fault.

Business lending figures are out and, surprise, surprise, it’s not looking good. According to a report from the British Bankers’ Association, lending dropped by £2.5bn in June – £1.1bn more than the average fall of £1.4bn seen over the previous six months. Of course, banks are keen to point out that it’s not their fault – even though anecdotal evidence suggests businesses are desperate to start investing again…

These being figures by the BBA, the organisation was quick off the mark in pointing out that rather than banks refusing loans, businesses just aren’t approaching banks with any desire to lend. ‘Businesses, as has been seen elsewhere, are concerned about the economic outlook and, in weathering difficult conditions, they are putting off expansion or investment plans and limiting borrowing’, mumbled the BBA’s statistics director, David Brooks, no doubt shuffling from foot to foot as he spoke.

What’s interesting about that, though, is that in separate surveys, businesses have given an indication that they’re keen to invest in growth. Indeed, a recent survey by GE Capital showed that businesses are prepared to invest £75bn in everything from commercial vehicles to office equipment to help them grow. Usually, that would translate directly into higher borrowing figures as businesses sought the cash to grow. So it looks like the main thing putting them off is the sheer cost of borrowing. Which, of course, is set by the banks. And with base rates at a historic low, it could be time for loan rates to soften, too.

That’s backed up by the Bank of England’s Agents’ Survey, which shows that there’s evidence that businesses still find borrowing far too expensive to be worth trying. The good news, though, is that ‘a number of contacts felt that borrowing costs had begun to decline a little’. So the sheer scale of this month’s decline could be a temporary thing. Fingers crossed…

For further information please click on the following link: http://www.managementtoday.co.uk/bulletin/mtdailybulletin/article/1081674/business-lending-plummets-25bn/



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