Criteria for loans gets tougher

Marion Dakers
SMALL businesses had more access to credit in the last quarter than any time this year but many companies remained wary of taking on debt, the Bank of England said yesterday.

A survey by the Bank showed that demand for loans tailed off in smaller companies in the three months to the start of September.

Lenders meanwhile expect to supply a broadly similar amount of credit in the last three months of 2010 as in the current quarter, and expect default rates to fall.

The central bank’s quarterly Credit Conditions Survey also showed lenders had “tightened credit scoring criteria” over the past six months, and expect to tighten them even further during the next three months. It said lenders had told them they were adopting a more “cautious approach”.

Secured lending to households, made up mostly of mortgages, fell in the third quarter and were forecast to decline further, according to the report.

Spreads on corporate lending also narrowed.

“Some lenders commented that heightened concerns about the outcome of the stress tests on the European banking sector ... had tightened funding conditions temporarily,” the Bank said.

The Bank of England carried out its survey of banks and non-bank lenders between 13 August and 3 September.