The amount lent to SMEs last month rose by £238m, the largest figure since records began in 2011, totalling around £170bn. The rise marks the first increase in bank funding to SMEs since February of this year.
However, on a year-on-year basis, lending to SMEs continued to decline, dropping by 3.3 per cent, while lending to larger firms continued to fall, both on a monthly and an annual basis. In total, UK firms are borrowing 3.7 per cent less than a year ago and 1.3 per cent less than a month ago.
Analysts were still buoyed by the news and are saying that the Government’s Funding for Lending Scheme appears to be working for smaller firms. The scheme, which was launched in October last year offers money at very advantageous rates to lenders, as long as they pass the savings on to borrowers. It was extended in April this year and, at the same time incentives for lending to SMEs were improved.
Meanwhile, Government-commissioned research by the National Institute of Economic and Social Research (NIESR) has found that banks are reluctant to lend to SMEs and to pass on cuts in interest rates, which refutes their argument that weak appetite for credit from small companies is the main reason for poor lending figures.
Instead, NIESR found that the banks' excessive aversion to risk was the key factor. It also warned that "low and average risk" firms have been even harder hit than their riskier counterparts, which suggests a "partial withdrawal of banks from SME lending as an asset class rather than only a response to risk".
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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