Creditworthy claims: Are banks lending to businesses?
The paper’s campaign comes hot on the heels of a Government consultation on how to boost lending to business, where it was reported ministers were considering setting lending targets for banks.
This morning’s editorial says: “The disgrace is that they lavish [funds] on their own bonuses rather than lending it at affordable rates to the small enterprises on which our recovery depends.”
But is the paper’s campaign misplaced?
The Claim
Earlier this week the head of the British Bankers Association (BBA), Angela Knight rejected assertions that banks are failing to get credit to small businesses.
Speaking to Radio 4’s World at One Programme, Ms Knight said: "On the question of availability, what the figures certainly show is that the availability of finance to small and medium sized enterprises, however you want to define them … is there and it’s available."
Analysis
Full Fact contacted the BBA to track down the numbers upon which Ms Knight’s claim was based. The Association produces its own figures based on the lending of its members.
These statistics show that, year-on-year, total lending to small businesses actually increased every year despite the crisis that hit the financial markets in 2007-8.
The BBA figures record total term lending for small businesses as rising from £41.7 billion in 2007 to £45.7 billion in 2008 to £46.9 billion in 2009
However there is a slight suggestion in the 2010 figures that the growth has slowed. The BBA report for May recorded total term lending as “nearly £46 billion” and the accompanying data shows that the total figure has been declining for several months.
However as David Dooks, Director of Statistics at the BBA, explained, this did not necessarily represent a restriction of the availability of credit, because the figures cover net lending.
Mr Dooks told us that a combined effect of reduced demand for credit among small businesses, and moves to pay off earlier loans, had contributed to a fall in total term lending.
The BBA statistics still show over £500 million of new loans being made available each month, but such loans were “largely offset” by repayments, he said.
However while the BBA figures back up Ms Knight’s assertion that credit is available, the data only covers those lenders which are members of the Association.
The Department for Business Innovation and Skills keeps track of further data covering lending to small businesses.
The data shows that apart from a reduction in the latter months of 2009, there has been growth in the stock of lending to small businesses, even if the rate of growth has slowed somewhat compared to pre-crisis levels.
As the Bank of England publication ‘Trends in Lending’ notes: “In some contrast to the continued contraction of the stock of lending to businesses in total, the stock of lending to small and medium-sized enterprises (SMEs) has risen slightly over recent months.”
The Bank also produces its own data on small businesses’ own experiences of the availability of credit. While the recording of this data is relatively new, limiting the perspective the figures can give, in the first two quarters of 2010 small businesses perceived a growth in the approval rates for loans.
So if the data suggests availability is not an issue, given that even the Bank of England Governor has hit out at banks’ lending policies, what is the problem?
Full Fact spoke to the Federation of Small Businesses (FSB), who told us that there were constraints on availability not covered in the above data, such as interest rates.
Their figures show that while the Bank of England base rate has come down, the gap between this and the rate charged to the smallest SMEs has widened.
Furthermore, the Federation of Small Businesses claims its members have seen the terms of existing loans changed, with interest rates put up in some cases by as much as 12 percentage points.
The FSB also argue that there is a story, which is untold by some of the data above; the stringent conditions applied to credit by banks is simply putting off businesses applying for credit altogether.
A survey of FSB members published in March this year recorded that 18 per cent of members applied for credit.
“Businesses are not even approaching their banks because they just believe that the answer is going to be no straight away even though they are viable businesses. They don’t want three or four people pouring over their accounts, it just puts them off.”
On this issue of the terms and conditions of the available credit, the British Bankers Association did not dispute these practices, but simply sought to justify them.
A BBA spokesman said: “There was an easy credit era for most of this decade but following the credit crunch we realised that was unsustainable. Effectively too much money was available too cheaply and now the pendulum has swung back.”
He added: “Therefore a bank has to ask more pertinent, detailed and sometimes searching questions than it did in the past because we are in a higher risk economic situation now.”
Conclusion
The debate over the availability of credit appears to be one that is not resolved simply by statistics.
The available data shows that lenders are largely still making credit available, backing up Angela Knight’s claim.
However, the issue is the meaning of this availability. As both sides in the debate acknowledge, the terms of the availability of credit to business has changed markedly, hence limiting funds to businesses that would have faced no difficulties in the past.
Likewise the two sides disagree on the reasons behind the reduced demand for credit among small businesses, with the BBA suggesting firms turn to their still sizeable deposits while the FSB claims companies have simply given up asking for loans.
Such points are difficult to settle with the facts. So as the Daily Mail goes to war on the bankers, it appears that this will be a battle not fought simply on the figures.
UPDATE: We've written a follow up piece on further controversies over lending statistics on the Full Fact blog.
Patrick Casey
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