Credit availability



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Where do businesses go when they need to borrow money? The answer, in the past, was always that their bank would be the automatic first port of call. But no longer, as the Bank of England's latest....

Where do businesses go when they need to borrow money? The answer, in the past, was always that their bank would be the automatic first port of call. But no longer, as the Bank of England’s latest quarterly Credit Conditions Survey reveals.

The headline news from the Bank is that the banks reported much better availability of credit during the fourth quarter of 2013 – and promised further improvements over the year ahead.

What is equally clear, however, is that many businesses – particularly smaller enterprises – have more or less given up on the mainstream lenders. Demand from these businesses for credit remains flat despite the improvement in the wider economic outlook and the banks’ greater willingness to lend.

Why should that be? Well, one reason business borrowers are looking beyond the mainstream sector is that competition from providers of alternative finance is now so much stronger. Many of these providers emerged during the years when the banks were refusing to lend to business customers, but although credit is now flowing a little more easily, corporate borrowers see little reason to return to the High Street.

In our own sector, for example, borrowers recognise the flexibility and speed of decision-making available on bridging finance. Our customers are still finding credit availability limited at their banks, but in any case they also appreciate the advantages of the alternative sector.

There’s definitely something emotional going on. Many businesses feel let down by the way they have been treated by their banks and genuinely value the relationships they have built with alternative providers. Don’t expect them to go crawling back to the High Street now that it is opening its doors fractionally wider.

One interesting statistic in the Bank of England’s report is that an increase in commercial property prices has improved credit availability for the commercial real estate sector – particularly over the fourth quarter of last year. This is the first time lenders have noted this trend since the Bank began specifically asking about commercial property prices in 2008.

That is to be welcomed, but the report also points out that the cost of credit – and the restrictions imposed by lenders – has barely changed for many borrowers, particularly smaller businesses. There is every reason to expect many of these borrowers will continue to turn to alternative providers for funding. And note that where the banks have improved their terms, they cite increased competition as the most significant factor in their decision to do so.

In short, 2014 will be another year in which the role of alternative finance providers – including providers of bridging and term loans – increases in importance. The competition we provide has finally forced the banks to respond, but they have not yet done enough to meet the needs of most corporate customers.

Besides, many companies no longer want to do business with the banks – they went elsewhere when the banks refused to play and see no reason to come back now the ball has been dusted off.

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