Business loans down as firms stop borrowing

 
Tim Wallace
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THE BANK of England’s Funding for Lending Scheme (FLS) seems to have kicked in to reduce lending costs for firms, official figures showed yesterday.

But business lending kept on falling, which industry groups believe points to a lack of demand from firms for credit.

Net lending to firms fell another £2.8bn in November, resulting in a 4.1 per cent fall in net lending on the year.

A net balance of more than 30 per cent of large firms saw interest rates coming down.

But despite that, larger firms increasingly looked to the capital markets for funds, raising £29.1bn in December, up from £13.5bn in November.

But smaller firms have less chance to use alternative funding sources – and a small net balance saw bank loan interest rates rising in the month.

“Signs that lower borrowing costs are beginning to reach firms are encouraging and show that Funding for Lending is beginning to make an impact,” said Matthew Fell from the Confederation of British Industry (CBI).

“However, weaker demand for finance among small and medium-sized businesses indicates that they are still lacking confidence to invest, so raising awareness of available schemes is crucial.”

Meanwhile the Labour party called the government’s efforts to boost lending to businesses an “abject failure”.

“Labour has led calls for a proper British Investment Bank to back business, but ministers are dragging their feet and bickering over their plan,” said the party’s shadow business secretary Chuka Umunna.

“The government’s Business Bank looks highly unlikely to get off the ground much before the next general election.”