In a bleak assessment, the Bank’s network of regional agents said credit conditions for businesses have tightened over the last month, while firms that did secure finance reported that rates and fees have risen reports The Telegraph.
Businesses are “being actively encouraged to pay off outstanding loans”, according to the latest agents’ summary of business conditions, which surveyed firms between late April and the end of May.
Small companies are complaining about the fees being charged for undrawn overdraft facilities, the agents added.
There were also strong indications of a continued lack of demand for finance from businesses, with the focus still on paying down debts and the appetite to borrow often “very low”.
In a further sign of the general lack of confidence, companies are becoming more cautious about providing credit to firms in their supply chains.
Despite the lending constraints, the strongest applicants for finance actually found that “competition between lenders … had intensified”.
“Companies with strong balance sheets tended to be able to borrow at reasonable terms,” the agents noted.
Christopher Shaw, chief executive of alternative finance firm Platform Black, said banks had turned “off the tap on lending” for all but the very lowest credit risks.
“There’s a real danger that this will have a chilling effect on the economy, even before the recovery has taken root.
“For the economy to start growing in earnest, [small businesses] need to grow and to grow they need funds. Currently, those funds simply aren’t there. The engine of the economy needs fuel but it’s simply not getting it.”
Separately, there were signs that the debt crisis in the eurozone is hitting British exports, with the agents noting that sales to Europe “had weakened materially” over the last month while the prospect of a further strengthening of the pound is causing “widespread concerns” among exporters.
However, overall exports “grew steadily”, driven by increased demand in a number of emerging markets, especially for luxury goods in China and Russia, investment in energy and infrastructure in the Middle East and mining in Africa.
More companies are looking abroad for the first time, the agents said, with the focus on “rapid growth markets” to offset weak demand at home.