Business lending has gone down again

It continues to be a bad time for small and medium-sized businesses in the UK. The latest report provided by the Bank of England has shown that business lending has gone down again in the quarter to November 2011. Similarly, levels of lending for households have remained static in the same three month period.

With economic activity already low, these figures from the Lending Report for January, courtesy of the Bank of England, lead to concern that the already tight conditions are going to get worse.Trouble with wholesale markets has been blamed for the increase in costs for business lending. Many of the major lenders in the UK have reported that it is higher costs of funding wholesale banks that have been feeding through to the prices of loans on new business.

This has been the case for the fourth quarter in 2011, and it doesn’t seem likely to change in the near future. Demand for credit is becoming subdued, with the difficulty in obtaining it being cited as the reason.

Banks are lending the minimum that they can to small and medium enterprises. This means that many viable businesses are being crushed because banks are saying no to lending. While banks are not expected to give money to businesses that are not viable, too many are being left without the required capital.

The consequences of this are that businesses are forced to take drastic action, such as either selling shares that they would prefer to keep hold of, or to take short-term loans that come with cripplingly high-interest rates.

Banks are disputing that they have not been lending however. The Commercial Group Director of Lloyds said that his bank was lending, and had in fact increased lending to smaller businesses by 2%, meaning a total of £9.6 billion given out.