By Marcus Leach

The Bank of England's Trends in Lending report has revealed that overall lending to businesses has contracted in the past three months to August, as well as lending to small to medium sized businesses (SMEs).

The Bank said that banks in the UK and Europe have found that wholesale lending has become increasingly expensive and scarce, as concerns over bank solvency mounted.

“Conditions in longer-term wholesale funding markets were very difficult in September, according to the major UK lenders,” the Bank noted.

“In recent discussions, some major UK lenders reported that higher wholesale bank funding costs were starting to feed through to their internal transfer prices although, as yet, the effect on loan pricing for corporates and households was muted.”

Official data, from the Bank, covering lending by all UK-resident banks and building societies indicated that the stock of lending to businesses contracted by around £2.5 billion in the three months to August.

The contraction in the stock of lending to businesses overall has been reflected in the stock of lending to SMEs, which continued to contract in the three months to August.

“Today’s figures come as no surprise — the stock of lending to SMEs has contracted. It’s reported that SMEs are more reluctant to borrow, but our own experiences have told us there is appetite for credit among SMEs. In the few days since we launched Shawbrook Bank we’ve been inundated with queries from businesses who want to borrow," Owen Woodley, CEO of Shawbrook Bank said.

“SMEs who are in a position to grow need access to capital when the time is right, and the processes that we’ve developed for loans will make it more straightforward for SMEs to borrow. Shawbrook is aiming to provide £250 million in secured loans to SMEs in the next year. We’re not expecting to solve the credit issue for SMEs in the UK on our own, but we think we can offer more choice to a significant number of SMEs who are poised to expand but so far have been unable to find a lender, or at least one able to give them a timely response.”

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