UK businesses should consider investing as banks stand ready to help them benefit from the economic recovery, said the British Bankers’ Association (BBA) at an accountancy conference.
While many businesses have repaid debt and deferred investment, holding growth in bank lending to small businesses to 1% in the past year, perceptions of a credit squeeze could discourage them from applying for loans and overdrafts and slow recovery. Finance is available and 80% of loan applications are being approved, Stephen Pegge, chairman, of the BBA’s small business panel, told the Institute of Chartered Accountants in England and Wales (ICAEW) event.
Pegge said: “Bank lending to small businesses is one of the most important services banks undertake but it’s ultimately driven by demand for finance and the quality of applications. Naturally when sales fall, the demand falls for finance to fund working capital and fixed asset investment – and affordability is stretched. This time at least, we’ve had low interest rates – small businesses are paying on average less than half the total interest costs of two years ago. Margins will of course reflect the cost of funding and risk but the competitive fight for good quality lending remains as hot as ever.”
He added that in addition to bank finance, equity finance has an important to role to play in funding growth. The BBA’s latest statistics showed that banks were lending to small businesses many times more than the amount raised by equity finance: banks extended new finance of £16bn to small firms over the year, compared to business angels’ investment of no more than £1bn to businesses of all sizes.
In his speech, Pegge urged businesses seeking finance to:
- Take advantage of export market opportunities.
- Invest in the capacity and productivity of their businesses.
- Consider equity finance including business angels alongside debt.
- Get good advice from finance professionals.
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