Business finance for the SME on the rise – Says Bank of England

242271417_6c85849d8bThe availability of funding to small businesses from banks and building societies is to continue to rise in the final quarter of 2013.

This is according to the Bank of England’s recently published Credit Conditions Survey.

Background on survey

The first Credit Conditions Survey was conducted in the second quarter of 2007.

The quarterly survey of bank and building society lenders is part of the Bank’s mission to maintain monetary stability and financial stability.

To facilitate this, the Bank needs to understand trends and developments in credit conditions.  Lenders are asked about the past three months and the coming three months. In addition to household lending trends the survey also covers lending to non-financial corporations, small businesses and to non-bank financial firms.

Along with various data sources and discussions between the major UK lenders and Bank staff, this survey serves as an input into the quarterly “Trends in Lending” publication, which presents the Bank of England’s assessment of the latest trends in lending to the UK economy.

To calculate aggregate results, each lender is assigned a score based on their response. Lenders who report that credit conditions have changed ‘a lot’ are assigned twice the score of those who report that conditions have changed ‘a little’. These scores are then weighted by lenders’ market shares. The results are analysed by calculating ‘net percentage balances’.

Analysis of the latest Report

Overall it was reported that credit conditions for non-bank financial corporations continued to ease in Q3.  The survey provides data broken down into the following sections:


The banks and building societies that contribute to the report predicted that the availability of funding to small businesses would increase significantly over the last quarter of the year when compared against the third quarter.  The report has also confirmed that the third quarter was already a significant increase against the second quarter.

The main factor behind this expected increase was the ‘changing economic outlook’.  It is worth noting that Mergers and Acquisitions, Capital Investment and Inventory Finance were the leading individual factors behind this.

The contributors to the survey also expected there would be an upturn in the percentage of small business loan applications that were approved.


The demand for both secured and unsecured lending from small businesses showed a large increase in Q3 and is expected to rise again in Q4.

The credit quality for newly arranged loans showed a slight improvement in Q3, and is expected to remain relatively unchanged in Q4.

In terms of draw-down of committed lines of finance Q3 showed a significant decrease, but it is predicted Q4 will see an increase in the usage of available credit.


The default rate in Q3 was relatively unchanged and it’s expected that this will remain the case in Q4.  Losses given default fell in Q3.

Loan pricing

The report confirms that the cost of borrowing to small businesses has dropped in Q3, but by nothing like as much as to medium or large businesses.  In addition, it confirms that they do not expect to see any change in this pricing during the current quarter.



These findings must be a relief to the policy makers at the Bank of England as it has been under significant pressure to increase lending to small businesses to support the turnaround of the UK economy.  It seems as if the Funding for Lending scheme is starting to help credit availability for small businesses as well as the mortgage market.


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Image by: Heaven’s gate (John)