Are the banks lending again?
21st March, 2014
As a finance lawyer in a major regional firm, I am involved in transactions where external funding is an integral part of the transaction on a daily basis. Having been in practice since the early 1980s, I have seen the availability of bank funding ebb and flow depending on macroeconomic conditions.
Prior to the “perfect storm” of 2007 and 2008, bank lending was plentiful in the UK with aggressive lending strategies pursued by some of the demutualised building societies, the Scottish and Irish banks and some other overseas banks, most notably the Icelandic banks.
Once many of the demutualised building societies and the Scottish, Irish and Icelandic banks had virtually collapsed and ended up government-owned in some shape or form, a large part of the economy’s lending capacity had been removed.
Those banks which had been rescued or narrowly escaped rescue were subject to stringent new capital adequacy rules which cut back their ability to lend.
Traditional bank funding became scarce and new sources of funding emerged, such as peer-to-peer lending platforms, insurance companies and opportunity funds.
However, much of this new funding has been focused on the property markets and not on providing much-needed working capital to trading businesses.
In that sector there has been an expansion of asset-based lending to provide working capital in place of traditional bank funding.
For example, some of the Irish banks have been expanding their asset-based lending arms even as their more conventional funding arms have been contracting.
In recent months, banks have been coming to terms with the new stricter capital regime and we have seen the high street banks lending more, particularly to good quality trading businesses.
We have also seen some new entrants to the market such as Metrobank and a regional expansion of banks such as Sweden’s Handelsbanken.
To counterbalance this a little we have seen the problems at the Co-operative Bank leading to some loss of capacity, particularly in the North of England where its penetration has traditionally been strongest.
So to return to our original question, are the banks lending again?
On balance, I think it is fair to say that overall the banks are lending again but on the basis of much more prudent lending policies than in the lending boom running up to the financial crisis.
There are also other sources of funding available such as the asset-based lenders and the peer-to-peer lending platforms.
In conclusion, while it may not be true that funding is plentiful, it is fair to say that good quality businesses should be able to obtain funding for their working capital requirements and to help finance their future growth.
* For more information on the issues raised by this article, please contact Mark Smith.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
This page may contain links that direct you to third party websites. We have no control over and are not responsible for the content, use by you or availability of those third party websites, for any products or services you buy through those sites or for the treatment of any personal information you provide to the third party.
