Bank lending still in decline

The research, carried out as part of the bank funded BDRC Finance Monitor, showed the number of firms using external finance dipped to a new low in the first three months of Q1 with just 39% of SMEs actively seeking credit. When the first Monitor was undertaken in 2011 the figure stood at 51%, and between the two there have been successive quarterly studies showing steady decline.

So it’ll be all eyes on Q2 and Q3 lending figures soon enough, and if we get to Q3 and there’s hasn’t been a change, it’s likely there’ll be eyebrows raised as it’ll surely be the beginning of the end for the credibility of the government’s Funding for Lending project.
Also in the BDRC research is evidence many firms are actually happy non-seekers of finance. This effectively means firms don’t want cash, or are accessing it from sources other than mainstream lenders.

This means any recovery people are expecting this summer – if there is one – is largely going to come from firms splashing their own stockpiled cash reserves which there’s been a lot about. This isn’t sustainable in the long term though – these happy non-seekers of finance will one day require the services of a lender.

The BDRC data also reveals that younger firms, seen as the more risky, were still less likely to get a yes from their bank manager. Of first time applicants 62% were refused overdraft facilities, and 59% loan applications. Those aren’t good odds.

Our members frequently report this kind of behaviour too. Established firms quite often appear to see no issues accessing bank credit, it’s the start-ups and the fledgling firms the ones with issue here. This BDRC data confirms what we’ve been hearing ourselves anecdotally, and that is alarming seen as the government’s plans for the economy hinge on new businesses.