The so-called loan ‘drought’ induced by the pandemic appears to be coming to an, with lending up by £12bn.
Banks are increasing their lending in wake of a sharp decline in wake of both the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) ending.
According to research from ACP Altenburg Advisory, there was a £12bn spike in lending for the 9 months up until May, totalling £533bn.
This comes after a seven per cent decline in the value of outstanding lending in the immediate months after the end of the schemes, brought in during March 2021 to help businesses with the pandemic.
Under the CBILS scheme, the government provided a safety net, covering 80 per cent of each loan while the BBLS initiative meant the UK paid for losses banks incurred if borrowers defaulted.
The rise in lending comes despite the Bank of England raising interest rates, with a member of its Monetary Policy Committee warning it could push them up even further, to two per cent.
Will Senbanjo, a partner at Altenburg, said: “Those Government-backed schemes were vital for keeping the flow of lending going during the pandemic but once they ended, bank funding was harder to obtain for several months.”
“While there are still significant headwinds facing the economy – principally rising interest rates – there is now more bank lending out there for businesses looking to grow or make acquisitions.”
Altenburg added that despite interest rates likely to go up, borrowing is still affordable for many firms. With the Bank of England’s rate at 1.25 per cent up from 0.1 per cent six months ago, some firms are looking to make debt-funded acquisitions.
Senbanjo says: “There are plenty of businesses looking at M&A deals as they seek to grow their business’ overall value and attractiveness to future buyers. For businesses seeking to borrow to achieve this aim, now could be a good time to lock in a low rate on their lending.”
“Not every business will find bank lending is the most suitable choice for them. Some may find borrowing is more easily accessible through debt funds or other non-bank lenders. Whilst these may be at a higher cost than bank funding, the typically higher risk appetite of non-bank lenders may allow a faster pace of growth, which may provide a more profitable overall funding solution for business owners.”