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Firms' credit availability 'is increasing'

The availability of credit for small firms has increased for the first time since the recession but the cost of borrowing is continuing to rise, research has indicated.

A survey carried out by manufacturers' organisation EEF found that the same proportion of small companies had found it easier to get credit during April and May than those who had found it harder, compared with 11% more firms who had found it more difficult in the previous two months.

There was a similar improvement for medium-sized manufacturers, with a balance of 7% of firms reporting a decrease in the availability of existing credit facilities, compared with a balance of 11% who encountered problems borrowing more money when the research was last carried out.

The survey comes the week after figures suggested the UK's top banks were on course to miss Project Merlin lending targets for small businesses.

Barclays, Royal Bank of Scotland, Lloyds Banking Group, HSBC and Santander UK lent £16.8bn to small and medium enterprises during the first quarter, putting them below their target to lend £76bn during 2011, which equates to £19bn in the first quarter. But the EEF said its survey suggested that lending to small and medium-sized firms may have improved in the second quarter.

But the group warned that the cost of borrowing remained a challenge for many firms.

Although fewer of the nearly 500 companies questioned reported a hike in rates on existing facilities, a balance of 22% of firms said they had seen an increase in the overall cost of credit during the past two months.

The price hike was most pronounced on new lines of borrowing, with a balance of 28% of companies reporting an increase in costs in this area.

Lee Hopley, chief economist at the EEF, said: "For the first time since the recession ended, manufacturers are reporting improving access to finance. Hopefully, this will translate into better news on new lending in the coming months. But availability is only part of the story and we also need to see costs coming down.

"Ensuring companies have access to the finance needed to invest and grow is critical for the recovery. We need to see a sustained improvement before concluding that the actions taken by banks and Government are bearing fruit and that no further measures are required."


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