Corporate loan defaults are rising - what does this mean for the credit supply?

The latest Bank of England’s credit conditions survey has some alarming news for businesses, if not surprising. 

 


Businesses face lending drought as corporate loan defaults rise 

BOE credit

 

The survey reports that banks are planning to offer fewer loans to businesses in the next few months. Likely loan availability went down to -13.5% which is it’s lowest level since the 2008 financial crisis.

 

The reason for the sentiment appears to be that banks are reacting to a more cautious approach from businesses themselves.

 

The survey also found that lenders were expecting demand for corporate lending to fall in the current quarter too with medium-sized businesses increasingly reluctant to borrow.  The implication is that companies are resisting new investment or expansions while awaiting Brexit direction and clarity. 

 

BOE credit 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

More worryingly was news that the BOE found that an increasing number of companies were defaulting on their loans in this quarter and that more were likely to follow. The net percentage balance for changes in default loans to corporates increased for small, medium and large businesses in Q3 and were expected to increase across all business sizes in Q4. 

 

Michael Biemann of digital property lender Selina Finance is concerned. He said: “It’s a concern that default rates for businesses of all sizes rose in the last quarter and equally worrying that lenders expect even more to start having problems with their repayments in the upcoming quarter.” 

 

The survey is released at the same time as Natwest Bank announced that it’s starting to run Brexit clinics for businesses to help listen to their concerns and prepare them for any possible changes coming at the end of the month or afterwards if an agreement with the EU is reached. 

 

The banks have committed to making £2.8bn available in small business loans during the Brexit period, up from the previously announced £6bn.  

 

We’ve already written about how the government is urging lenders to provide guaranteed funding for businesses that require it during any Brexit transition period and Natwest are the first high street bank to launch their offering.

 

If nothing else Brexit has been a case study in unpredictability. 

 

When you assume one thing, something else happens. Then another totally unexpected event happens and by the time you’ve adjusted your plans entirely, the thing you planned for in the first place happens. 

 

You need to make sure that you’ve covered every eventuality for your business for the next few weeks, months and even years.  It’s easier to mend a vessel in port than it is in the middle of a raging storm. 

 

Contact us and we’ll arrange a free initial consultation with one of our expert advisors to help you pinpoint any weaknesses and strengthen your business wherever it can be bolstered. 

 

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