Business lending falls by half a billion during three months to February, says Bank of England

The total amount of money lent to businesses across the UK by banks and building societies fell by a substantial £0.5 billion in the three months to February this year, according to research released by the Bank of England on Tuesday.
This is despite a series of government and Bank initiatives to help make access to finance easier for small and medium sized enterprises (SMEís), and increase net lending to businesses so that they can expand and stabilise at present. 
However, whilst net lending fell by 0.5% in the three months to February, this was substantially lower than the £3.3 billion drop in the three months to November, with it also being identified that overall lending picked up during February.
Earlier this month, a Bank of England survey revealed that the level of credit available for businesses to access had risen in the past six consecutive quarters, whilst the Funding for Lending scheme has recently been refocused away from the mortgage market and into business lending in a bid to pick up overall levels.
The primary reason being attributed to the consistent fall in bank and building society lending is the recent boom in the usage of alternate finance industries such as Crowdfunding sites, which explains why lending levels have not picked up despite greater credit facilities now being available from traditional lending circles.  
“The headline business lending data made grim reading, but the situation is not black and white,” said Alan Clarke, director of fixed income at Scotiabank.
“While the growth of lending to businesses remained negative, this is partly explained by firms taking advantage of cheaper sources of financing. As blockages in the financial markets have cleared, firms have been able to source borrowing directly from the financial markets rather than through the banking system. So in this regard, lower business lending is actually a good sign because financial markets are returning to normal.”
The bank highlighted this trend by looking at the fall in lending to the real estate industry, which typically comprises the largest  share of business loans. Bank data illustrated that net lending from banks and building societies fell by 8.1% in the 12 months to February this year, but have continued to perform strongly and remain relatively stable financially. 
“This contraction in the stock of lending to the real estate sector has sharpened in recent months as borrower repayments have started to increase, aided by improvements in the performance of the market,” the Bank said. 
They also highlighted that a multitude of businesses in the commercial real estate industry were now utilising alternate sources of finance such as through Crowdfunding circles in order to acquire their desired cash injection, 
“A significant chunk of business lending is typically financed from retained profits,” he said. 
“Hence it is possible that we can have a very strong year for business investment without it being accompanied by faster lending.”
The rise in the usage of alternate sources of finance has not been a sudden one, and indeed as awareness of Crowdfunding and other peer-peer finance mediums increases, so it seems the usage of them over banks and building societies has as well.
The Bank data appears to illustrate that despite an increased availability of finance offered by banks and building societies that borrowers are still opting to utilise less traditional mediums to acquire loans, and this trend could well continue across the decade if peer-peer finance firms carry on their meteoric rise to the top. 

 

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