It can be argued that 2013 was hardly the greatest year for the small businesses of the UK, with banks being typically cautious when distributing loans due to the current economic instability across the country.
However, 2014 may well be a far brighter year for firms, as the Bank of England has forecasted that small business lending will continue on the upwards trend that it displayed in the final quarter of last year.
The overall availability of credit to the corporate sector increased significantly in the fourth quarter of 2013, according to lenders, and a further increase was expected in the first quarter of 2014,” the Bank said.
“Lenders reported that the availability of credit had increased for small businesses and large private non-financial corporations.”
The bank also disclosed that general credit availability for business and consumers had improved during 2013, and cited the large number of large loan to value mortgages distributed as clear evidence that the criteria to attain credit had loosened in recent times.
Higher levels of credit distribution are expected during the current year, though the bank said that the number of applications from small businesses had not improved in recent times.
This is despite the fact that interest rates have remained at their historic low of 0.5% for almost five years now, and growing apprehension has emerged about the future direction of the countryís small business firms.
The bank added: “Spreads on corporate lending fell in the fourth quarter, with significant reductions reported for medium-sized companies and large private non-financial corporationís (PNFCs), and a slight reduction reported for small businesses.
Over the next three months, lenders expected spreads to tighten further for medium-sized companies and large PNFCs, and to be little changed for small businesses.”
Lee Hopley, chief economist at EEF, the manufacturers’ organisation, said: “Steady improvements in credit conditions are continuing and the Bank’s survey brings further signs that finance providers are making more credit available and risk appetite is increasing. However, the issue of cost is still lingering for smaller businesses.
With a turnaround in investment on the cards for this year we will also need to see a real pick-up in net lending to businesses and fewer companies saying they have been discouraged from accessing external finance.”
Howard Archer, economist at IHS Global Insight, said that whilst availability of credit was steadily improving, that it would still take some time for it to be matched by small business demand, but praised it as a step in the right direction.
“Indeed, latest data from the Bank of England shows that net lending to non-financial companies fell by £4.7bn in November. This was the sharpest drop since the series started in April 2011. Net lending had previously fallen by £1.1bn on October following a rare rise of £714m in September.
It can be argued that with credit now easier to acquire, that it is only a matter of time before small businesses begin capitalising on low interest rates, though many will likely proceed with caution due to the likelihood of interest rates rising sooner rather than later.
It is essential that small businesses begin to flourish again in the country, as a thriving sector would mean the creation of higher income jobs and a stronger economy as well. After such a flat 2013 for small businesses, it is hoped that 2014 holds a far more upward trajectory for their performance.
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