Small business loan demand drops unexpectedly

The Bank of England’s latest survey on credit conditions showed small businesses demand for loans has dropped while supply has increased, however high street banks are not lowering their prices.

Small business’ demand for credit “fell unexpectedly” over the past three months, despite some banks making more money readily available for small businesses, the Bank of England reported.

The cost of small business loans remained steady, suggesting banks chose not to reduce their margins to attract new customers.

These findings have followed confirmation from the Bank last week that high street lenders had substantially increased charges and fees on new home loans, which was more than the rise in their costs.

The third quarter Credit Conditions Survey conducted by the Bank of England uncovered that most lenders didn’t expect to up credit lines to small businesses or medium sized companies any further this year.

The banks that have increase lending to small businesses said they are doing so “to increase market share”.

The demand for credit amongst businesses with sales of up to £25m, which is considered the medium-sized business category, stayed “broadly unchanged”. Meanwhile small business demand had remained on the decreased.

“Some lenders commented that better management of working capital together with some improvement in profitability had generally dampened demand, and the uncertain economic environment was constraining investment-related demand for new lending,” the Bank said.