Bank of England report shows cost of credit reaching new heights

Cost of credit highest since January 2009

New figures from the Bank of England show that the cost of credit for Britain’s small business has reached a 30-month high – and levels of lending are plummeting to new lows.

The Bank’s latest Trends in Lending report found that, in August, the cost of credit for companies turning over less than £1m reached its highest point since January 2009.

Figures from the British Bankers Association and the Department for Business Innovation and Skills showed that interest rates for small firms reached 4.68% in August – even though the Bank’s base rate remains anchored at just 0.5%.

Perhaps unsurprisingly, the researchers found that the value of outstanding loans to small companies is continuing to fall – in fact the annual rate of lending growth reached -10% in June.

 Discussing overall lending conditions, Bank experts claimed that many small businesses felt “discouraged” from applying for loans. Meanwhile small business leaders highlighted a series of systemic issues.

Phil McCabe, of the Forum of Private Business, told Startups: “A core problem is that the banking infrastructure is being hollowed out by branch closures, redundancies and the widespread removal of lending powers from local bank mangers.

“This means over-centralised banks are no longer in a position to gauge risk accurately and make decisions based more on what sector a business is in than its individual merits, which restricts credit, pushes up costs drastically and subsequently alienates business owners.

“We urgently need greater competition between high street banks to improve service levels, and to allow new, innovative and often more flexible funders to be able to compete in finance markets dominated by the big players – measures such as tax breaks for private lenders similar to what is being proposed for venture capitalists under the Enterprise Investment Scheme (EIS).”

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