Posted on 06.01.2014, by Rob Warlow
The monthly business borrowing figures released by the Bank of England has once again fuelled the ‘banks aren’t lending’ debate but as I mentioned last month (Bank Lending to SMEs Is Falling But That’s Just One Side of the Story) delving deeper into the figures reveals a slightly different story.
The release of the November bank borrowing figures lead to media comments such as ‘bank lending tumbles’ and ‘slump in bank lending’. These headline grabbing quotes was on the back of Bank of England figures which showed that in the month of November alone the total amount of business lending (overdrafts and loans) fell by £4.7 billion.
However, the detail in the numbers doesn’t quite support such a doomsday situation and here’s why.
The monthly reduction figure quoted is the fall in ‘net lending’ – this is the total stock of all borrowing which is the sum of new lending drawn down in the monthly less monthly repayments.
What is happening is that businesses are repaying debt quicker than the banks are lending it back out.
Here are the figures (these numbers only include loans with overdrafts having been taken out in the stats by the Bank of England):
| Month | New Loans | Repayment | Net Lending |
| August | 9.6 | 12.3 | -2.7 |
| Sept | 13.5 | 14.5 | -1.0 |
| Oct | 15.5 | 15.3 | 0.2 |
| Nov | 13.5 | 16.7 | -3.1 |
We can see that in August the banks lent out £9.6b and whilst this increased to £15.5b of new lending in October, the amount of £13.5b in November still compares favourably.
However, new lending is being offset by higher repayments in the month so resulting in a reduction in the total stock of loans. In November new lending of £13.5b was offset by repayments of £16.7b resulting in a net reduction of £3.1b.
These figures relate to businesses of all sizes but the Bank of England also issues figures with the larger businesses stripped out leaving just SME borrowing and these reveal a slightly different picture.
| Month | New Loans | Repayment | Net Lending |
| August | 3 | 3.6 | -0.6 |
| Sept | 3.3 | 3.8 | -0.6 |
| Oct | 4.1 | 4.4 | -0.2 |
| Nov | 4 | 3.7 | 0.2 |
We can see that overall there has been a steady increase in new loans to small businesses. The British Bankers’ Association has quickly pointed out that the new lending to SMEs (totalling £4 billion in November) was 38% higher than the £2.9b seen in the same month in 2012.
Nearly 40% increase! I don’t see this figure being mentioned too much in the media!!
And there is further good news; for the first time in many months, November actually saw a net increase in lending to SMEs of £200m i.e. more was lent out than was paid back.
So, both from a combined position, and for SME lending on its own, the underlying problem is that businesses are paying off debt at a quicker rate than they are taking on new loans.
At a gross level, bank lending does appear to be increasing.
We can argue that banks should be making an effort to lend more in order to get to a positive position each month but should we be too concerned that businesses are paying down debt? We saw businesses gorging on easily available credit during the boom days and quite sensibly they are now focused on paying debt down.
I have talked before about the lack of appetite amongst businesses to borrow and this has been highlighted in a number of surveys. The most recent of these is the quarterly SME Finance Monitor report. In its latest review to Quarter 3 of 2013, they reported that 78% of SMEs classified themselves as ‘happy non-seekers of finance’.
Yes, nearly 80% of those small businesses surveyed said they have had no interest in borrowing over the last 12 months! No wondering that debt repayment is exceeding the total of new loans disbursed.
So, let’s not listen too much to the negative press headlines. Undoubtedly there are some businesses who feel aggrieved at their bank saying no; yes, in some cases banks could be less risk averse; but the bottom line is that there is evidence emerging that lending is on the way up… for those business who actually want to borrow that is.
Hi Rob, it was so interesting and entertaining listening to you at the Kevin Green Wealth Coach Workshop in Reading this weekend! I didnt realise you can find Finance proposals such fun!. Brilliant tips! Thanks.
Further to your recent presentation at LEAD Wales just wanted to say it was very refreshing to see somebody talk passionately and positively about finance, very insightful!
Rob delivered a series of 3 workshops aimed at understanding how finance houses look at finance propositions with the aim for us as a team to deliver more of a bespoke offering to our customer base. The training was delivered to a mixture of staff who work with new businesses start-ups and existing established businesses across Mid & South West Wales. Rob delivered the training with an abundance of passion and has really helped my team look at financial propositions in a different light, many thanks again Rob and I look forward to work with you in the near future.
I wanted to thank you for such an insightful, energetic, and entertaining talk at the Kevin Green Wealth event on securing funding and creating a successful plan. It was brilliantly executed and a pleasure to listen to and the ideas I’ve learned are definitely going to help me in going forward.
Rob kindly agreed to attend the recent Pontypridd RFC sponsors networking evening and delivered what can only be described as an excellent talk on 5 Tactics to Boost Your Business and Your Profits. He kept the audience engaged throughout and the feedback from everyone was excellent. Rob is very knowledgeable on business and finance and on top of that is a genuine nice guy. We hope to have him back at a future event and I have no hesitation in recommending Rob’s services.