Fall In Successful Loan Applications

There has been a decline in the percentage of success rates of businesses applying for loans from banks. In 2007 90% of loan applications to banks were successful but in 2010 there was a fall to 65% of successful loan applications. The percentage of SMEs looking for finance increased from 35% in 2007 to 42% in 2010. A majority of three quarters of businesses went to banks when looking for loans and five out of six businesses expect to apply to banks when looking for loans in future.

The main reason for refusal of loan finance was given as a lack of collateral or a lack of own capital. Poor credit rating became the most notable reason among other lenders in 2010 whereas in 2007 reasons were more sparse. In the few cases where the failure to get finance was becuase of a refusal on the part of the applicant high interest rates were less of a problem in 2010 than in 2007. This is partly due to the fact that in 2007 the Bank of England base rate was over 5% but in 2010 the base rate was held at 0.5%.

The economic outlook was given as the main limiting factor for business growth. Price competition and small margins were also among the main reasons given along with limited demand in domestic markets.

Bank Maintains Interest Rates At 0.5%

The Bank of England's Monetary Policy Committee decided at their meeting on 7 May 2009 that the bank rate will stay at 0.5% on commercial bank reserves. The MPC also decided to increase the size of its asset purchase programme by £50 billion to £125 billion. The world economy remains in deep recession, global output has contracted and international trade has fallen. The increase in private saving, the restructuring of balance sheets by banks and weaker global demand will continue to hold back economic activity. Another factor acting in the other direction is the stimulus given by governments around the world to improve the availability of credit by easing in monetary and fiscal policies. It was decided that as the stimulus is expected to eventually lead to a recovery in economic growth and inflation to return to the 2% target, the interest rate should remain at 0.5% and also to continue with the programme of asset purchases financed by the issuance of central bank reserves and increase its size to £125 billion.