2011 Is Finally Seeing A Rise in Commercial Mortgage Lending
It has been a tough few years for small businesses. Banks have been reluctant to lend to medium sized enterprises since the 'credit crunch' and companies have found it difficult to obtain the bank loans and commercial mortgages they need to build their businesses.
Recent date from the Bank of England shows that the situation may finally be improving. Bank lending increased in January 2011, reports the Financial Times, with more commercial mortgages and business loans being made available. Business leaders are encouraged by these figures which show that banks may finally be loosening their purse strings again.
The FT reported that over the three months to the end of January, business lending grew at an annualised rate of 2.6 per cent. This means that loans to private companies increased by over one billion pounds in January.
The Government has come under fire over recent months from small and medium sized businesses who feel that they are being locked out of the commercial mortgage market. So, in response to these concerns, the Government has implemented action nicknamed 'Project Merlin' a plan to increase the amount of bank lending to small firms.
As part of an agreement on the thorny issue of bank bonuses, banks have agreed to a combined target of GBP190 billion of commercial mortgage and business lending in 2011, up from the GBP179 billion agreed in 2010. The target for lending to small businesses has been raised from GBP66 billion to GBP76 billion.
As part of Project Merlin, bank chief executives will be measured on their business lending when it comes to determine their own bonuses.
Despite these Government approved commitments, many business experts remain to be convinced that lending will improve. "The vast majority of businesses are not going to the banks and seeking finance at the moment" said Andrew Cave from the Federation of Small Businesses. He added: "And those that do are telling us that the cost of borrowing both existing and new borrowing is increasing and those issues are not going to go away with [this] announcement."
Unless small businesses are able to borrow loans and commercial mortgages, it makes it very difficult for them to grow. Without a commercial loan, firms cannot invest in new stock, technology or equipment. The knock on effect of this is that they are unable to create new job opportunities for the unemployed.
"While the big banks' renewed commitment to small business lending is welcome, ministers and the banks need to focus their energy on improving frontline services for small and medium sized firms." So says David Frost of the British Chambers of Commerce (BCC) who agrees that many companies are not even asking for commercial mortgages at the moment. "Without clear lending processes and more sensible decision making at a local level, many businesses will still be reluctant to ask for loans and big net lending targets will not be met."
Project Merlin may help small companies by increasing the targets for commercial mortgages and loans in the UK. However, whether the banks will actually agree more lending to small firms remains to be seen. For many, agreeing more commercial mortgages is vital to the UK's economic recovery.
About the Author:
Howard writes for Just Commercial Mortgages.com the UK's No.1 site for the latest commercial mortgage rates and commercial property finance news.
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