Over the next four years, the EY ITEM Club predict net lending to businesses will increase by up to 17%.
This follows six years of contraction with business lending down by 31% since 2008.
According to EY ITEM, since 2009 bond issues rose up to 23% at £7.5 bn per quarter, in comparison to bank lending that reached only £2 bn per quarter as businesses repaid more than they borrowed.
Chris Price, EY ITEM’s head of financial services in the UK stated: “While there is little doubt that traditional bank lending will find its feet again it looks like the recent lending drought has changed borrowing behaviour permanently. The challenge for banks now will be regaining market share from the alternative finance providers who have successfully plugged the gap for the past six years.”
Funding for Lending
In 2012 the Bank of England launched their Funding for Lending scheme that enabled building societies and banks access to cheap finance to lend to businesses and households. This was changed later to focus on smaller companies.
But even under this scheme, net lending for small businesses continued to decline, highlighted by a fall of £128million in the third quarter of 2014.