Our thoughts on Bank Loans for SMEs

11th November 2013

Our thoughts on Bank Loans for SMEs

Even though the economy started to show the early signs of the recovery, most of the SMEs remain sceptical and therefore feeling very anxious about the external finance methods such as bank loans.

The figures from the recent British Bankers' Association research proved that businesses are choosing not to borrow in the difficult economy climate:

''£15.3 billion of agreed business borrowing is currently unused.''

''45 per cent of agreed overdraft borrowing facilities are unused.''

Even though banks are offering various initiatives and trying to remove the barrier for the SMEs to pick up the recovery quicker, the climate does not look very positive as yet. A shocking 76% of SMEs interviewed by BBA were not seeking external finance and were very pessimistic about the future borrowings.

On the positive note, ''FSB figures show that the cost of finance for small businesses is actually falling. In Q2 2013 (the latest figures available) the cost of finance is lower than at the same point a year ago. With over 31.5 per cent of SMEs being offered interest rates of less than 4 per cent, and over 20 per cent being offered rates between 4 per cent and 4.99 per cent.''

 

However, if we think the situation is bad enough here in the UK let's have a look how the rest of the Eurozone counties, especially the ones in peripheral zones, cope.  Financial Times has recently reported the results of the research conducted by the Institute of International Finance suggesting that ''lending to SMEs across the periphery plunged by more than a half over the past five years, with the Irish decline of 82 per cent''. According to the report, interest rates for SMEs in countries like Portugal, Spain, Italy and Ireland were 4 to 6 percentage points higher than for businesses in Germany (up to three times higher than German SMEs).

Such results makes UK SMEs realise that the situation in UK banks and condition for borrowing are not as bad as some of us might have thought. On the other hand, it is up to individual businesses to decide what suits their needs best and how much trust they can place in someone else's hands.

At last, it looks like the bankers will have to do quite a bit of work before they can re-gain the trust from the people who were let down and dragged into their mess which started back in 2011.

References:

Financial Times, ''SMEs in Peripheral Eurozone Face Far Steeper Borrowing Rates'' by Patrick Jenkins, 10 October 2013, Available at: http://www.ft.com/cms/s/0/3c9843d0-31a1-11e3-817c-00144feab7de.html#axzz2hPyNdPQS

BBA, ''BBA Comment on Today's Bank of England Funding for Lending Update'', 2 September 2013, Available at: http://www.bba.org.uk/media/article/bba-comment-on-todays-bank-of-england-funding-for-lending-update

 

Author of Blog: Diana Cirbiene

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