Responses to BoE’s Credit Conditions survey

Graham Toy examines how BoE’s Credit Conditions survey does not tell the full UK business borrowing story.

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Graham Toy, CEO at the National Association of Commercial Finance Brokers (NACFB), examines how BoE’s Credit Conditions survey does not tell the full UK business borrowing story.

The latest Bank of England snapshot of credit conditions was published in mid-October and they paint quite an uncertain picture of the lending landscape, suggesting some funders are ready to tighten the screw on businesses in the final quarter of 2017.

With SMEs feeling the pinch in uncertain economic times, spreads on lending widened between July and September and were expected to stretch further in the final quarter. In the mortgage market, banks have raised lending slightly but are aiming at lower-risk borrowers with more than 25 per cent equity and mortgage defaults saw their first increase since early 2016.

The survey, conducted from August 21 to September 8, is based on responses from Britain’s biggest banks and building societies, but crucially this does mean it does not necessarily reflect actual industry conditions. The survey covers secured and unsecured lending to households; and lending to non-financial corporations, small businesses, and to non-bank financial firms.

The survey and subsequent data from the Bank of England data is a clear sign that more needs to be done to connect small businesses with the right kind of finance, credit to the corporate sector is still readily available - despite banks being more tentative with unsecured lending to households.

The diminished levels of demand for credit amongst businesses - notably SMEs - contradicts the levels of activity we've been seeing from our own brokers. This seems to indicate that business owners are increasingly looking to secure finance beyond the more conventional routes.

The BoE survey tallies with additional data that saw confirmation of what many in the industry have known for some time - in that a majority of SMEs do not trust traditional lenders to support their businesses.

The data, according to the Federation of Small Businesses, demonstrates that optimism among the UK’s smaller companies has fallen to its lowest level since immediately after the referendum on EU membership in June last year. A record number of entrepreneurs - one in eight - are now expected to downsize, close or even sell their company. But amid this seemingly plunging confidence and political flux, lending intentions to businesses remain remarkably good. 

There was concern among Brokers that after Brexit, lenders would simply pull up the drawbridge and defer decisions until the smoke had cleared. But we are seeing moves to the contrary, the FSB’s data also signals that while there's some hesitancy in certain sectors, the UK's lenders are well and truly open for business. This aligns with what the NACFB is seeing among our member brokers, namely that there is still a good level of funding available to small businesses.

While it remains encouraging to see that SMEs are looking beyond the high street for their funding needs, clearly more needs to be done to engage the business market at large. With 90 per cent of business owners still turning to their main bank when looking for a loan, it's vital that the Government continues to reinforce these other finance channels - this will help the economy to ride out the choppy waters ahead.

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