Is the UK financial market really on its way to recovery?
Is business confidence now back to its 2008 level? Well, the answer it appears is that it depends who you talk to. Medium and large enterprises apparently think that the economy is on the up and are borrowing accordingly, but SMEs are still to be convinced. Why are SMEs reluctant to invest in their businesses at the moment: well, any accountant will tell you that it’s because they are still struggling to get access to cheap credit. The cost of borrowing is falling for medium and large businesses, but it appears that the same rules do not apply to SMEs.
The scale of this problem has recently been highlighted in the latest Bank of England quarterly Credit Conditions Survey.
It found unsurprisingly that during the last quarter of 2013 the overall demand for loans from UK small businesses remained largely flat. The bank believes the reason for this is that the cost of borrowing for SMEs remains a major issue despite British lenders reporting an increased availability of credit for businesses of all sizes due to increased competition in capital markets and the general improvement in the economic outlook. SMEs have been reluctant to borrow because the overall price of credit had hardly fallen to any noticeable degree, in contrast to large and medium-sized businesses who have experienced sizeable reductions in the cost of their borrowing. However, there is one note of optimism as banks and building societies have told the central bank that they predict a “significant increase” in demand from small businesses for credit during the first quarter of 2014.
The Bank of England now accepts that small firms are yet to benefit from the Funding for Lending scheme, as most of the gains have so far gone to mortgage borrowers. However, Mark Carney, governor of the Bank of England, recently confirmed that it was now refocusing the scheme on business lending, stating:
“The changes announced [will refocus]the FLS where it is most needed – to underpin the supply of credit to small businesses over the next year – without providing further broad support to household lending that is no longer needed.”
Matthew Fell, director for competitive markets at the Confederation of British Industry (CBI), believes this new initiative which will increase the available credit for small firms should at least provide a boost to business confidence going into 2014:
“The cost of finance is also falling, but less so for smaller companies, so it’s right the Funding for Lending Scheme is now firmly focused on reducing the cost of lending for these firms,” said Fell.
If your business is looking to expand and is looking for credit, then why not speak to Steven Glicher.
Our accountants can help your business raise finance and can give you expert advice on identifying the type of funding you need, finding the most suitable sources of finance, and calculating the cash-flow projections, budgets, and trading forecasts. For further information give us a call on 0161 485 8007.