Bank of England reveals crunch in small business lending

The findings of the Bank’s agents report, which also suggested borrowing costs are rising, underlined the crisis in small business finance that the Chancellor hopes to relieve through his “credit easing” programme. However, concerns have been raised about the so-called National Loan Guarantee Scheme (NLGS) after it emerged that many of the banks involved have set a minimum loan value of £25,000. Small business groups have described the floor as disappointing – as it will prevent smaller companies from taking advantage of the one percentage point reduction in borrowing costs the NLGS is expected to deliver. The Bank’s report said: “Some banks were averse to lending to smaller firms altogether, because of the high administrative costs associated with small loans. Some small companies were now seeking alternative sources of funding, such as angel finance, from wealthy individuals or peer-to-peer arrangements.” It added that “there had been a rise in the number of contacts reporting an increase in spreads or fees when refinancing existing loans”. The agent’s report accompanied the minutes to the Bank’s most recent rate-setting meeting, which showed that members of the committee had not changed their opinions since March. Seven members voted for rates to remain unchanged at 0.5pc and to leave the stock of quantitative easing (QE) at £325bn. Adam Posen and David Miles, both of whom voted for a £75bn increase in QE in February rather than the £50bn agreed, called for a further £25bn. The minutes also drew attention to the rising risks of another oil price spike, after the 12pc rise since April that has “largely reversed the decline in prices since the previous peak in April 2011”. “If oil prices were to rise to a level significantly higher than the Committee currently assumed, then that would tend to slow the global and domestic recovery, reduce supply growth, and put upward pressure on domestic costs and prices,” the minutes said. Rising oil prices could also weigh on consumer spending. “If consumer demand were to weaken further, then there was a risk that the expected recovery in business investment spending might also be further delayed,” the minutes added. Despite the fears, the economic outlook was generally considered to have improved and the agents report showed that businesses investment intentions had picked up slightly for the first time in a year.