What does rock bottom lending really suggest?

posted in: Finance | 0

The BDRC – that’s Business Development Research Consultants – SME Finance Monitor was published on Wednesday, and has shown that lending levels to business hit a low in the third quarter of this year.

Quite frankly we’re not surprised, and nor, we suspect, were many people.

The report found 57% of all UK SMEs said they neither use any external finance, nor have any immediate plans to do so. Use of ‘core banking products’ such as loans, overdrafts and credit cards declined by 5% year-on-year, from 39% in Q3 2011 to 34% in Q3 2012.
Essentially bank lending to small business is not where it should be and is likely hampering economic recovery in the UK. It certainly is not at the level required to encourage the kind of growth the UK desperately needs for jobs and prosperity.

The irony is that this is despite various high profile initiatives from Government and the Bank of England over the past few years deliberately aimed at getting banks to up lending, and to make sure those firms who need cash the most could access it.

These figures show despite all this, and huge pressure from senior government ministers and business leaders too, the banks are still far too risk averse. It’s clear that there’s also a perception from business that even if they did apply for credit, the answer would be no anyway, so why bother?

Remember the TSB advert of days gone by – ‘the bank that likes to say yes’. Well the BDRC data shows these days are well behind us.

How much of this is down to confidence, or lack of. It’s no doubt that some businesses are still retrenching, but many more are simply fearful of the future and seem unwilling to invest. This means they don’t need access to finance.

But what can be done? Government can do little about the calamity of the Eurozone, or other influencing world factors.

George Osborne will get the chance to get the ball rolling on confidence next week in the Autumn Statement. But he’ll have to pull something really special out of the bag.

Will he deliver? Can he deliver?

We can but hope.