Rise in SME bank lending ‘will boost UK economy’

Net lending from banks to small and medium-sized enterprises increased by more than £600 million in the first three months of the year, figures from the Bank of England have shown.

Lloyds Bank
The increase in the amount being lent by banks participating in the government's Funding for Lending Scheme was a marked turnaround from 2014 when net SME lending fell by an average of £500 million a quarter as repayments persistently exceeded new loans.Much of the increase in the first three months of this year came from Lloyds Banking Group, which contributed £409 million. RBS Group and challenger banks Aldermore and Shawbrook each lent more than £100 million.Samuel Tombs, senior UK economist at Capital Economics, commented, "The Funding for Lending Scheme now appears to be successfully incentivising banks to lend more to SMEs."While net lending to SMEs has only risen for one quarter so far, with business confidence high, borrowing rates still low and consumer demand growing strongly, both small and larger businesses alike are likely to seek more credit in order to expand over the rest of 2015."Howard Archer, chief economist at IHS Economics, said increased SME borrowing should soon flow through to economic growth. "It suggests that businesses are looking in decent shape and are becoming more ready to invest – that is obviously important for balanced growth," he said.However, John Longworth, director-general of the British Chambers of Commerce, said there remained work to do, with a need for more competition in banking and to ensure businesses could achieve access to bond markets."Over recent years lending to SMEs has consistently fallen, so it is brighter news to see that decline arrested at the start of 2015 and lending increase," he said."However, if our young, fast-growing businesses are to reach their potential, then much more needs to be done to make sure they can get access to the finance they need. We need to have the funding mechanisms to back their ambition."We need to see improved competition in banking, make sure businesses can get to retail bond markets, and, crucially, ensure there is sufficient backing for the British Business Bank so that it can match the aspiration of our future high-growth wealth creators, and provide the access they need to non-equity finance."In early May, HSBC launched its most ambitious lending package yet for SMEs, earmarking £8 billion for companies throughout the UK."It's vital that SMEs across the country, from start-ups and sole traders upwards, know that HSBC is there to support them. We want to be their bank of choice," said Antonio Simoes, chief executive of HSBC UK."That's why we've launched our largest ever package of support, with £8 billion available to lend and a promotion designed to make it cheaper and simpler to borrow for businesses."For more Re:locate news and features about the UK economy and enterprise, click here

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