Out-Law News 1 min. read

Manufacturers report higher cost of credit despite better availability


Manufacturers are continuing to find it easier to obtain access to credit following "tentative signs of improvement" at the start of the year, according to a new survey. However, one fifth of companies are reporting an increase in the overall cost of credit, including higher fees on existing borrowing arrangements.

According to a quarterly survey on the credit conditions in the industry by EEF, the manufacturers' organisation, the balance of companies reporting an increase in the overall cost of credit has worsened to 21.2% at the start of the year. EEF said the increase appeared to be due to "fees and other costs on lending", with 16.2% of surveyed companies reporting that they were now being charged higher fees on their existing borrowing arrangements.

EEF said that its figures showed that the Government had to do more to promote its £20 billion National Loan Guarantee Scheme, which was launched in March to reduce the cost of lending to small businesses. However, the organisation stressed that it was "early days" for the "important scheme".

According to EEF's figures, the percentage of companies reporting improved availability of credit on their existing arrangements had increased by 1% since the start of this year – the first time it was able to report an increase since the survey began in 2007. The number of companies reporting improved availability on new lines of credit had also increased since the start of the year, to 4.3%.

"A greater improvement in the availability of credit after tentative signs of improvement at the start of the year is welcome, especially on existing terms as changes in these are often a point of sore contention amongst SMEs," said EEF's chief economist Lee Hopley. "Increasing costs, however, remain a frustration, particularly the proportion of companies reporting higher fees."

Under the NGLS, the Government will guarantee up to £20bn of unsecured borrowing by participating banks, enabling them to pass their savings from borrowing at a cheaper rate onto business customers. Companies with an annual turnover of up to £50 million will receive a discount of one percentage point on the interest rate that they would otherwise receive from the bank if they borrow funds guaranteed under the scheme. However, businesses will remain subject to the banks' usual lending criteria before they will be able to take out a loan.

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.