Since the economy took a turn for the worst in late 2008 and the country was plunged into recession, banks have been increasingly unwilling to lend to small businesses. Taxpayer bailouts have made chains such as RBS and Lloyds careful about gambling with what is partly public money, leaving companies struggling to raise cash to invest.
Fortunately, the Ernst & Young ITEM Club has predicted that lending will increase by 3 per cent to £440 billion throughout the rest of 2013. This will grow to 8.5 per cent in 2014, equalling a total lending amount of £447 billion per annum.
Should the ITEM Club’s expectations prove to be correct, this will be the first year that bank lending to businesses will have increased since 2009.
Head of financial services in Europe at Ernst & Young, Andy Baldwin, believes that the break from mass lending has allowed banks to strengthen their financial cores.
He says; “You might be forgiven for thinking we were still in the midst of the banking crisis.
“But behind the scenes banking fundamentals have quietly been improving and banks are now in a better position to be able to provide funds to the wider economy.”
According to Mr Baldwin, banks are more likely to be encouraged to lend by improved access to wholesale funding and a decrease in bad loans rather than a reliance on the Funding for Lending Scheme. While it is true that the FLS has recently been extended and improved, it has so far failed to have any great impact upon business lending since its launch last year.
Conversely, the confidence of lenders is being boosted by a decrease in the amount of money lost to bad loans. Industry experts believe that write-offs will drop to £9.3 billion this year – a sum which makes up only 0.56 per cent of all borrowing in 2013.
ITEM Club senior economic adviser, Carl Astorri, believes that this positive take on the future of lending is due to the fact that company executives and bankers alike are now taking the uncertain business world in their stride. Although the Eurozone crisis the downturn in the Chinese economy present difficulties, these obstacles are being dealt with rationally.
He says; “Things like the Eurozone collapse, the Chinese hard landing or sequestration in the US have been prevalent when we speak to top chief executives and chief financial officers.
“But increasingly they are less fearful and are becoming used to operating in an environment where those risks exist.”
Should banks begin lending in earnest to SMEs again, it is hoped that a period of growing prosperity could build upon the 0.3 per cent GDP growth recorded in the last quarter. Perhaps, with easier access to reasonable funding on the horizon, Britain’s struggling small businesses will finally see a light at the end of the tunnel.
Do you think the ITEM Club forecasts will prove to be correct, or will lending to large companies at the top of the food chain increase while small businesses are left struggling financially?
Previous Post
Greggs Bakery Chain Posts Profit Warning
