The business loan drought which has prevented many millions of new businesses from getting the business loan they need in recent years is finally over. That’s the view of the Bank of England whose new report says that banks and building societies are showing ‘an increased willingness’ to lend to small businesses.
The Bank also believes that it will become even easier to borrow over the next few months.
Government intervention helping end the ‘business loan drought’
For six years, the business loan market in the UK has been cautious about agreeing loans. The choice of business loan products fell sharply after the credit crunch and new businesses found it increasingly hard to get a business loan. And for those with a poor credit history bad credit loans were almost impossible to find.
Now, though, the Bank of England says that the country’s lenders ‘expect the availability of secured credit [such as business loans] to significantly increase’. And, unlike recent years, it said people with smaller amounts of capital can still get finance.
According to finance experts part of the reason for the improvement has been the intervention of the government because of so many people being frozen out of the housing market in recent years as a result of the deposit required. Although there has been a growing trend for parents to take out guarantor loans for their adult children to help them raise enough deposit, this is by no means a practical or desirable solution for all people.
While the average young person puts down a deposit of 20 per cent, the Help to Buy scheme requires a deposit of only five per cent, but allows people to buy an old or new home for up to £600,000.
The Daily Mail reports that, on average, people using the scheme have a household income of around £45,000, the majority are not buying in London and the South East and more than 80 per cent are first-time buyers.
Lenders including Royal Bank of Scotland, Lloyds Banking Group and the Post Office are now offering loans. But, it’s not just government intervention that has resulted in the end of the ‘business loan drought;’, as we see next.
Banks showing a greater appetite to lend
In its report, the Bank of England also said lenders have been watering down the stringent tests which people must pass before they are given a loan. It said: ‘Consistent with an increased risk appetite, credit scoring criteria were loosened and the proportion of loan applications being approved increased significantly.’
Various schemes have helped new businesses but there are signs that the lenders themselves are gaining an increased appetite for lending.
With strong competition between High Street lenders, there are now more business loan deals available than at any time since the global financial crisis. The availability of cheap deals and an increased range of business loans should continue to help the UK’s business loan market to recover.