Jan 23, 2013

Industry news - Bank action as business loan demand declines

High street banks have informed the Bank of England they are selling alternative finance facilities to small and medium sized businesses (SMEs) with overdrafts as industry lending showed a 3% fall.

In its quarterly Trends in Lending survey The Bank of England reported that reports from SMEs that they were being moved off overdraft facilities and onto alternative funding options, some of which are more expensive, appeared to be happening industry wide.

A number of the major UK lenders reported that they were developing programmes to sell alternative finance products, such as leasing or invoice finance, to their SME customers.

The high street banks also reported that loan applications from SMEs with turnover of up to £25m were "broadly flat, or negative, over the preceding six months". The British Bankers' Association's most recent figures for lending to businesses turning over less than £1m showed an even greater decline at 6% against the previous year.

The Bank of England reported that the value of applications for new term loan and overdraft facilities in the six months to February 2012 was 19% lower than in the same period last year.

Businesses applying for loans are also seeking less money than the previous year according to data collected from the lenders by the Business Department.

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