Latest figures from the Bank of England of lending to businesses show a continuation in the decline of total money lent to UK businesses. But small businesses appear to slightly better off than their larger corporate counterparts.

The figures to June 2014 reveal that the total amount of loans (including overdrafts) currently outstanding to businesses decreased by £3.4 billion in June, compared to the average monthly decrease of £0.9 billion over the previous six months. This results in a twelve-month fall of -3.8% in the stock of loans currently outstanding in banks.

However, a glimmer of hope for small businesses. Within these figures, loans (including overdrafts) outstanding to small and medium-sized enterprises (SMEs) increased by £0.2 billion, compared to the average monthly decrease of £0.5 billion over the previous six months. So unlike their larger corporate counterparts, UK small business owners are coming out on top.

That said the overall stock of loans advanced to small businesses has contracted by -2.8% over the twelve-months compared to June 2013 but this compares favourably to the overall fall of 3.8% for businesses of all sizes.

One important point to remember is that these figures relate to the amount outstanding at the end of the month i.e. existing loans, plus new money lent in the month, less money paid back during the month. When we delve further into the figures, particularly in relation to small businesses, the amount of new money being lent each month is showing a slight increase,

Monthly New Loans to Small Businesses

April £4.1b
May £4.3b
June £4.8b

Of course, these new loans are being netted off against monthly loan repayments and overdrafts paid down and here we see that small businesses are more or less paying back what they taking in new loans

Monthly Repayments by Small Businesses

April £4.5b
May £4.3b
June £4.7b

The net result looks like this:

Month   New Loans   Repayments   Net Amount

April               £4.1b               £4.5b                   -0.5b

May                 £4.3b              £4.3b                     0.0b

June                £4.8b              £4.7b                     0.1b

So are we seeing early signs of banks stepping back in to the SME market? If so, this growth is being offset by small businesses which would rather pay debt off than take on more; the appetite amongst small businesses to borrow may not as strong as many believe it to be.

Of course the other argument is that the ‘new loans’ figure should be a lot higher resulting in positive growth but it is the banks that don’t have the appetite to lend.

In reality it’s a bit of both!

Posted on 13.01.2014

In this episode of the Business Finance Bulletin Rob Warlow looks at the latest bank lending figures which, when you look closer, shows that banks are beginning to lend more to small businesses.

Rob also looks at the consequences of not diversifying your client base and how this is one area of risk that banks consider when reviewing a business finance request.

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):

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.

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.