We released our latest Credit Conditions Survey on Wednesday and once again the news is good and hopefully a positive sign leading up to the next Funding for Lending data release next week.
Our survey asks manufacturing companies a range of questions about the availability and cost of finance.
Key findings included:
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• A balance of 1% of companies reported the overall cost of finance has increased
This is actually a really good result as the cost balance has been a difficult one to move since we brought in the survey in 2007q4. This is the lowest balance of companies reporting an increase in the survey's history.
• More small companies report the cost of new lines of borrowing falling rather than rising for the first time
Small companies have consistently fared worse than larger companies accessing finance since the recession. Bank of England spreads data showing interest rates on lending to SMEs relative to reference rates have wideneed for SMEs. Larger companies also have more options when it comes to accessing finance - including going to capital markets directly themselves. So this is another great result.
• A balance of 15.7% of companies reported an increase in the availability of new lines of borrowing.
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Another record result - and encouragingly driven by increases in availability for SMEs rather than larger companies. Could this potentially be a sign that the FLS is focusing lenders on SME lending?
• A balance of 10% of companies reported an increase in fees compared 5% in 2013q2
Slightly more negative result here suggesting that not all costs of lending are coming down. Fees in particular have been a troublesome area since the financial crisis with many companies reporting to us that they are being applied more frequently or vigorously.
• The proportion of companies reporting no need to borrow remains high at 52%
Along with other surveys (like the SME Finance Monitor, the latest version of which will be released this week) our survey has shown a large proportion of companies appear to be opting out of using external finance altogether to support their investment. This is a worrying trend as it would mean investment will go forward more slowly than would otherwise be the case.
Overall these trends are promising but we are calling for the government to push hard to make the funding environment more competitive and diverse for SMEs to capitalise on this momentum and build a better range of support for SMEs in the future.
Our main recommendations are for the government to:
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Launch a focused review on what practical steps can be taken to get more competition in high street banking for SMEs. The review should include but not be limited to:
Considering provising SMEs with an explicit, capped, and time-limited incentive that matches any savings firms can secure from switching banks;
Pushing the banks to move further than the redirection service they will introduce in September and move as soon as possible to full account number portability;
Considering how new banks could make use of existing bank and government infrastructure to lower the set-up costs of establishing a branch network;
Considering in the light of all current and planned actions whether SME banking will nonetheless remain uncompetitive and should be referred to competition authorities.
Given its existing position of tasking the incoming Payments Regulator with reviewing the merits of full account number portability, the government should also include a review of the merits of a common utility platform;
Focus its Business Bank on promoting competition in SME banking.