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Credit conditions remain tough for SMEs

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Larger businesses are experiencing a greater availability of credit for the first time this year, but smaller firms are continuing to struggle to access capital, the CBI has reported.

According to the business group’s latest Access to Finance Survey, of those firms seeking new credit lines in the past three months, 27 per cent said that availability had improved, while 10 per cent said it had deteriorated.

The rounded-up balance of 18 per cent compares well with May’s -20 per cent and is the first increase in credit supply since the survey began in January.

The improvement was the result mainly of figures supplied by the largest employers – those with over 5,000 workers – who enjoyed a significant rise in new credit.

Firms predicted that the situation will continue to ease during the next three months.

It was, however, a different picture for SMEs. They experienced a moderate decline in the availability of existing credit lines (-12 per cent) and anticipated a similar tightening over the next three months. Although the supply of new credit improved slightly ( 8 per cent), SMEs believe it will stay subdued.

But even for the biggest firms, the new capital is proving expensive. Half of firms saw a rise in the cost of new credit during the last quarter, and one in five (21 per cent) reported a rise of more than 100 basis points.

Trade credit insurance, which covers businesses’ suppliers against non-payment for their goods, is still a persistent problem. A balance of 57 per cent said availability had worsened over the past three months, with the credit limit being insured, the cost of the insurance and the speed of renewing insurance all deteriorating at an even sharper rate than in May’s survey.

Richard Lambert, the CBI’s director-general, said: “Credit availability had been getting more difficult for many months, so the results are positive news. The improvement in access to new credit will help many businesses struggling with the recession, and it is encouraging that its supply is expected to improve in the months ahead.”

But Mr Lambert highlighted the problems still being posed SMEs: “Smaller and medium sized businesses are still facing challenging credit conditions and have fewer funding options open to them than big companies. We hope that over time their credit supply will improve.

“It is still unclear when bank lending will be flowing freely again, but for many firms credit conditions are at last moving in the right direction.”