Raising Finance

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Bank lending to businesses is 25% less than before the crash

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Bank lending to businesses is set to reach its lowest level since before the crash, but is expected to pick up sharply next year, research suggests.

The report, by Ernst and Young Item Club, also projected that peer-to-peer lending for SMEs would increase five-fold, to be worth £1bn by 2016.

Across 2013, total lending to businesses is expected to fall to £422bn, 25 per cent less than in 2008. But the forecasts predict that lending will pick up by seven per cent next year, as banks and businesses begin to develop greater faith in the economy.

Lending to businesses is expected to overtake its 2008 peak in 2016, with lending of £602bn projected for that year. 

Despite this projected recovery, though, SMEs are still expected to look elsewhere for finance, as they continue to be overlooked by banks.

Item Club’s Carl Astorri says: “Alternative finance for SMEs will not fall away just because business lending is going to bounce back. SME lending is still very expensive for banks, especially given some of the regulatory pressures on asset quality, and some of the funding gap will continue to be filled by non-bank lending.

“We expect peer to peer lending to grow rapidly in the next few years as demand for funding from SMEs outstrips supply from the banks”

Peer to peer funding was worth £200m last year but is projected to be worth £1bn by 2016. 

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