Cost of credit will continue to rise for small firms, according to Bank of England
Report also claims banks are ignoring pledge to treat each application on its merits
The outlook for small firms seeking credit has got “somewhat gloomier,” according to the Bank of England.
The Bank’s latest lending report claims the cost of credit will continue to rise for small businesses over the remainder of this year – while conditions will improve for bigger companies.
According to the study, credit will become increasingly expensive for firms turning over less than £1m – but, for companies generating up to £25m, the cost will fall.
Furthermore, the authors claim a number of banks are failing to deliver on their pledge to treat each credit application on its individual risk and merits. Instead they are making blanket, pre-conceived decisions based on an applicant’s industry.
A Department for Business spokesperson assured Growing Business that ministers are continuing to scrutinise bank lending, saying:
“The government wants to see the banks working hard to improve their relationships with small businesses. We must see significant improvement over the next few months.
“We are monitoring the banks’ performance extremely closely and if they fail to meet the commitments they have agreed, we will examine options for further action.”
Meanwhile, the Forum of Private Businesses was quick to condemn the banks’ ongoing indifference to small companies. Policy advisor Phil McCabe told us:
“Over-centralisation and the decline of regionally-devolved decision making powers – real, local bank managers who know the businesses in their areas – is restricting access to finance and pushing up lending costs for many firms.
“Banks are doing their small business customers a disservice. We have been saying for at least three years that mainstream lenders are making decisions based on perceptions of risk based on industry sectors rather than on the merits of individual businesses and, in effect, without the proper assessment of risk at all. Finally, the Bank of England has accepted this.
“We need banks to commit to reinvesting in their local infrastructures – but we are also advising business owners to do better at producing and presenting clear, concise and standardised accounts and financial projections in order to maximise their chances of getting the affordable funding they need.”