U.K Small Business Loans Fall Down ~$600 million
Thought the Great Recession is passing into the remembered past instead of the active present, small businesses in the U.K. are continuing to feel the sting of tightened lending standards that leaving many up and coming enterprises starved of dollars. The latest Trends in Lending report, released by the Bank of England (BoE) , indicates that net lending to small and medium sized enterprises funded through the Government’s Funding for Lending (FLS) program as fallen again in the second quarter of 2014, this time contracting by £400m (around $600 million). The FLS was launched to help banks release loans cheaply, particularly loans to small and medium sized business.
Large firms are also being hurt by falling loans via the FLS—lending dropped £3.9 billion (about $6 billion) to large corporations between the start of June and the end of August 2014.
On the upside, Q2’s drop was less severe than it has been in the recent past. For example, Q1 2014 saw the loans to British small businesses fall off by around £700m (or around $1 billion), but the continued patter of contraction in lending to small businesses continue to highlight a sector that is not recovering when it comes to available dollars for financing.
Compounding those difficulties at the bank, credit availability for small and medium sized firms in the United Kingdom has also been on the decline. The Guardian reports that according to the latest Credit Conditions survey, the demand for credit has begun rapidly outstripping its local supply. Moreover, a recent report released by the Federation for Small Business indicates that around half of all small business owners polled nationwide report that credit is simply to expensive to make meaningful use of, which a majority, 52 percent, rate the availability of credit to their business as “poor” or “very poor.”
“Net lending to small businesses is still falling, which is disappointing given their immense importance to the economy,” commented Samir Desai, founder of Funding Circle. “Traditional banks are hamstrung by legacy issues, limiting their capacity to lend.
With limited lending and traditional credit channels available for the British mom and pop (mum and pop?) businesses, increasingly SMEs across the pond are looking to alternative lenders to fill in those funding gaps. Peer-to-peer lending services such as Funding Circle have seen their business increase as traditional loan dollars are leaking out of the system. In the first half of 2014, loans from P2P serves climbed to £300m (~$450 million).
“Government initiatives – such as the SME lending referral process – need to be pushed to the top of the agenda to ensure that UK businesses ripe for growth don’t suffer due to lack of funding,” he said.