Credit conditions for business - what's new?

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The Bank of England's Credit Conditions survey, published today, tells us not much has changed for smaller businesses over the quarter, but there were sustained improvements for larger corporates.

Corporate credit availability was reported to have increased again in 2014q1

The increase in credit to small businesses was modest and no change was reported in availability for medium-sized companies

Higher demand and lower spreads on lending were notable cross larger corporates

No change in spreads on lending for small business over the quarter

Corporate credit availability continues to edge up% balance of change

Source: Bank of England Credit Conditions Survey and EEF Credit Conditions SurveyThe Bank's Survey reports a positive balance on availabilty for business, a trend also seen in EEF's recent Credit Conditions Surveys.

For manufacturers overall there has been a clear improvement in the lending environment has been picking up since the end of 2012. But both our survey and the Bank's show that smaller companies are benefiting less than larger corporates.

It's the economy, obvs% balance - factors contributing to credit availability

Source: Bank of England

Key reasons for a pick-up in the availability of finance are the improving economic outlook, which should also be a factor in lenders upping the amount of credit available in the next quarter. Alongside this lenders are also reported an shift in risk appetite and efforts to gain market share, which have also contributed to greater finance available.

On the demand side, positive trends were noted in M&A activity, new capital investment and commercial real estate purchases.

What now?

Most of the evidence on credit conditions over the past year has been moving in a more positive direction, with a brighter demand outlook support more demand; progress in banks' balance sheet repair and interventions such as FLS helping out on the supply of finance.

Not job done though. There are some issues that remain unresolved, including getting a grip on the cohort of discouraged borrowers (which we have flagged up before), getting the overall cost of finance for small companies down and ensuring companies have access to a broad spectrum of financing options within and outside the banks.

Author

Chief Economist

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