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Better Lending to Small and Medium Businesses

Better Lending to Small and Medium Businesses

The Bank of England has recently revealed that financial institutions across the country are lending more to small and medium-sized businesses as customers become more confident in approaching borrowing as a means to meet their capital requirements.

According to the Bank of England, the latest statistics have shown a significant rise in the amount of loans offered by banks to small and medium-sized businesses, also commonly regarded as SMEs.

Financially speaking, SMEs are businesses which have an annual gross profit of up to £25 million. It has been reported that small and medium-sized businesses have borrowed approximately £170 billion in June, following an initial rise of £238 million in the previous month. This was regarded as the highest monthly rise of the past years, as lending to SMEs has seen a dramatic decline since 2009.

Howard Archer, chief economist at financial forecasting firm IHS Global Insight, declared that banks are more willing to support small and medium-sized businesses in their development referring to the government’s Funding for Lending Scheme (FLS) as the main influence.

The Funding for Lending Scheme, which was extended in April, at the same time with the improvements brought to SMEs lending, demonstrated a genuine interest in investing towards the greater benefit of smaller enterprises, and is thought to have a positive impact upon banks and their business customers.

The FLS allows financial institutions to borrow money from the Bank of England with a significantly lower rate, under the condition that they provide it in the form of loans to small and medium-sized businesses.

In the light of the recent increases in small business lending, which were warmly welcomed by the Bank of England, the institution has also warned against relying solely on monthly statistics. According to the bank, 50% of their business customers are still being refused credit, which shows that financial improvements on that matter still have a way to go.

By contraries, lending to highly established enterprises has seen a downfall on a monthly and annual basis, as businesses are currently borrowing less than a month ago and a year ago by 1.3% and respectively 3.7%. In the last year, lending to both big and small enterprises was faced with an overall decline of £1.3 billion.

Apart from SMEs lending, The Funding for Lending Scheme has also had a noticeable effect on mortgage lending as the number of mortgage approvals has turned out to be below expectations. The government has issued a new Help to Buy scheme, which is thought to be able to give mortgage lending the necessary boost.

The British economy is directly influenced by the changes occurring in the lending offered to small and medium-sized businesses. Although most companies and retailers have confirmed a record rise in profits over the past couple of months, they insist that overall annual sales are still below average, a situation that is unlikely to change unless the banks keep up their statistics in SMEs lending.

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