The Bank of England has admitted that the amount of lending given to small businesses during the fourth quarter of 2012 actually contracted; which means that the Government efforts to boost the economy via SMEs may be falling flat.
According to the Trends in Lending report published by the Bank of England the amount of lending offered to businesses actually dropped by about four billion during the fourth quarter of 2012. Vince Cable, the business secretary, is not likely to take this news happily given he started up the Funding for Lending scheme in July of 2012 to help aid this very problem.
The Funding for Lending scheme is supposed to motivate banks to offer credit to their customers by offering banks access to cheap credit that they can pass onto small businesses. The problem is that there has not been enough corporate credit demand and businesses are simply wary of taking the money.
With the economic climate looking so shaky, a great deal of new businesses is afraid of investing in any new infrastructure or growth so they are not up for borrowing even if the rates look at lot more attractive.
The Bank of England report stated that the business contraction seen overall has affected all business sizes and the annual rate of growth in SMEs is just not large enough. The Bank also believes that capital markets are offering another lending source that many larger businesses are turning to over traditional lending agents.
In fact, bond issuances saw an increase during the last quarter of November while net lending among UK banks continued to fall during the same period. The good news is that while there may not have been as many lenders as expected, the SMEs that have taken out lends have received great rates.