Small Business Lending Fees Continue To Climb

Fri, 23 Oct 2009

Net lending to small and medium sized businesses remained negative in August, while new SME lending fees continued to rise, new data from the Bank of England has revealed.

In its latest lending trends report, the Bank said that lending to small business improved considerably from July but added that equity and bond markets were currently seen as more attractive sources of external finance for businesses than bank borrowing .

The report said: "Longer-term retail funding costs, such as rates on fixed-term deposits, were reported to remain elevated relative to Bank rate or Libor, and were expected to remain so for some time."

The report also revealed that total net mortgage lending rose in August to £1 billion, up from -£0.2 billion the previous month.

"Looking forward, a net balance of big lenders in our survey expected credit availability to rise somewhat over the next three months," the Bank continued. "That was largely driven by perceptions of an improved outlook for the economy and house prices.

"Lenders’ appetite to lend may also be supported by the reduction in default rates reported in that survey, though defaults were still expected to rise further."

Michael Coogan, director general of the Council of Mortgage Lenders (CML), commented: "Funding conditions remain challenging, despite the encouraging signs of a slight thaw in wholesale funding markets."

"Today’s report very much confirms our own assessment of market prospects - the most likely scenario is a slow and long-drawn out recovery."
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