Bank of England Credit Conditions Analysis – the big picture for small businesses

Arguably the best bit of news was that default rates for small business fell sharply during the fourth quarter.

With the economy recovering, and consumers and businesses becoming more confident by the day, this trend looks set to continue throughout 2014. Fewer businesses, thankfully, are now struggling.

One negative (although some may argue it is a positive) is that many small businesses have effectively given up on the high street banks as a finance resource.

Look at these latest figures and you’ll see that the demand from smaller companies for credit was flat in the fourth quarter.

The irony is that far more banks are reporting increased credit availability for smaller firms.

So even if there is more money on offer, and we can really only take the banking community’s word for it, it seems that fewer small businesses are listening.

It’s now become very clear that simply knocking on the door of the bank you have been with for a number of years is no longer the default option.

We travel around the UK speaking to thousands of small businesses each year and there is little doubt that more companies are looking to alternative forms of finance and investment.

The connection with alternative finance is not just practical but emotional. There is a growing disconnect in the smaller business community with traditional forms of finance.

Many businesses felt, and still feel, that they were let down by the banks after the financial collapse of 2008; and now that thing are recovering, they’ve got no particular interest in going back. The banks simply don’t deserve their business.

Even if smaller firms did go to the high street, there’s no guarantee that they would get finance anyway, whatever the banks say about them lending – and being prepared to lend – more.

If you’ve got assets as a business, any kind of security, you’re far more likely to be successful when approaching your bank.

If not, and many smaller companies, especially web-based ones, have zero assets, you are on a hiding to nothing.

The banks, whatever they say to the contrary, are still drawn towards lower risk companies where, if everything goes wrong, they can get back their loans and credit.

Stewart Baird of SME venture funding specialists, Stone Ventures