Slow improvement in lending for manufacturers – EEF survey

Sustained progress vital as firms set to demand more external finance next year

Key findings

· Balance of SMEs reporting improved finance availability highest in over a year

· Proportion of companies reporting a decrease in the cost of finance edges higher

· Fees and rates on existing borrowing pushing up responses on the overall cost of finance

· Access to finance from parent companies improves

· Over a fifth of firms expect to demand more external finance to support investment in the year ahead.

UK manufacturers have seen an improvement in credit condition through the second half of 2012 with responses on both availability and cost of new lending improving for the second quarter running according to a major survey released today by EEF, the manufacturers’ organisation.

The balance of companies reporting increased availability of new lines of borrowing moved back into positive territory over the past two months from -1%, to +4%. New lending availability was also positive for a balance of the smallest companies in the sample (less than 100 employees).

In addition, the balance of companies reporting increased costs of new borrowing also edged down, though remained positive at +5%. The overall cost of credit was, however, still rising for a balance of companies as a result of the cost of credit on existing arrangements and fees.

A new question in the survey shows that demand for external finance is set to increase for a balance of companies in the next year. Over a fifth expect their financing needs to grow to support investment plans whilst less than 5% expect their demand to reduce relative to 2012. However, the percentage of the smallest firms with no plans to borrow next year, at 43%, stands notably higher than for mid-size and large companies.

Commenting, Ms Lee Hopley, Chief Economist at EEF, the manufacturers’ organisation, said:

“We’ve seen a few quarters of modest improvement in lending which is encouraging. With companies, on balance, expecting their demand for external finance to increase next year, progress on increasing the flow of credit and getting the cost down has to be sustained and built upon going forward.

“We are yet to see the details of the new Business Bank but, what it must do, is start to provide a long term solution to the underlying problem of a lack of competition in SME banking.”

ENDS

221 companies took part in the survey conducted between 31 October and 21 November

EEF has been carrying out its quarterly Credit Conditions survey since Q3 2007

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