The total value of lending to UK businesses has risen by £12bn to £533bn in the nine months to end May 2022*. Banks have increased their lending following a sharp fall at the end of the CBILS and BBLS schemes, which is welcome news considering the current weaker economic background.

This recent bounce in lending follows an initial £7bn drop in the value of outstanding lending in just two months following the end of Government guaranteed loan schemes in March 2021 (see graph below).

As we discussed in the Evening Standard and City AM recently, banks naturally took a more cautious approach to lending once the government guarantees were removed. However, lending activity has been steadily rising since September 2021 despite the crisis in Ukraine and the increase in interest rates.

CBILS and BBLS lending had made up most of the small and medium business lending between April 2020 and May 2021, representing 61% of total lending to SMEs during this period. So that £7bn drop following the end of the CBILS and BBLS could have been far worse.

Businesses will be glad to see that banks have started lending again following the removal of the CBILS and BBLS guarantees. While there are still significant headwinds facing the economy – principally inflation and rising interest rates – there is now more bank lending out there for businesses looking to grow or make acquisitions.

Borrowing still affordable despite interest rate rises

Whilst the Bank of England interest rate has risen sharply recently, from 0.1% to 1.25%, they are still very low in a historical context. For example, just before the 2008 financial crisis, the base rate stood at 5.75%.

There are plenty of businesses looking at M&A deals as they seek to grow their business’ overall value and attractiveness to future buyers. For businesses seeking to borrow to achieve this aim, with interest rates still being competitive, now could be a good time to lock in a low rate on their lending.

Some businesses may find borrowing is more accessible through debt funds or non-bank lending, rather than bank lending. Whilst they are usually at a higher cost, the higher risk appetite of those lenders may allow businesses to pursue a faster pace of growth.

ACP Altenburg Advisory is part of ACP, a leading independent debt advisory association for SME and mid-market companies, advising clients on the options available to them and providing hands on support from day one all the way through to drawdown.

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