Credit requests from small businesses fall.

As part of its remit to “contribute to protecting and enhancing the stability of the financial systems of the United Kingdom”, the Bank of England needs to be aware of current & changing credit conditions. In order to do so it regularly carries out a survey for lenders the most recent having been conducted between 11 February and 8 March. Lenders were asked about the past 3 months & the coming 3 months.

The findings of the survey regarding small businesses show a marked fall in credit requests for the three months up to early march 2011.  It is thought that this is the result of the combined effects of the weather together with concerns over the governments proposed spending cuts.

Lenders also stated, however, that they anticipated that the second quarter would bring an increase in requests for credit from businesses with an annual turnover of less than £1 million.

The survey also indicated that the availability of loans for small & medium enterprises did not change during the first 3 months of the year.

Default rates and losses were reported to have increased for small businesses, as had spreads. There were small increases in fees & commissions on lending to small businesses.

David Kern – the chief economist at the British Chambers of Commerce (BCC) – commented: “The findings of the survey confirm the difficult circumstances facing the UK economy in the first quarter of the year and the pressures facing businesses, especially smaller firms. While the overall availability of credit has increased a little in the first quarter, the amount offered to small-and medium- sized businesses is broadly unchanged.

“The findings confirm that a lack of demand remains a major obstacle to adequate credit growth. In particular, there has been a sharp decline in demand for credit from small businesses. More worryingly, spreads on lending to smaller companies have increased, adding to pressures on their profits.

“Overall, while there are no major surprises in this survey, it highlights the risks facing the UK recovery and the importance of making every effort to support growth, particularly for smaller firms.”

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