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UK lending dips in January, credit rating downgraded

Mar 01, 2013 Sean Albert

The end of 2012 did not bode well for small and medium-sized enterprise (SME) borrowing in the United Kingdom, and the SME sector has not fared any better to start the new year, according to a study by the British Bankers Association.

"January's severe weather impacted adversely on what was already a subdued picture of borrowing demand from households and businesses," said BBA statistics director David Dooks.

Both financial and non-financial business borrowing declined year-over-year for January, decreasing £7.8 billion and £200 million, respectively. These declines came despite the Bank of England launching its Funding for Lending Scheme in June 2011, which aimed to provide incentive-based loans to SMEs. According to the International Business Times, the FLS program has had minimal impact on short term lending for smaller companies. 

Meanwhile, the U.K. economy received more bad news when Moody's, a U.S.-based credit agency, recently downgraded Britain's credit rating. The report cited the country's poor medium-term growth potential and the failed FLS initiative as major reasons the U.K. was hit with the reduction.

Alternative lending could offer solution
Declines in lending, downgraded credit rates and a stagnant economy would have many business owners and entrepreneurs discouraged about the future of the British economy. But Justin Urquhart-Stewart, founder of Seven Investment Management, believes there is much to feel good about, according to an article by The Star.

Urquhart-Stewart spoke recently in front of members of 60 high-growth SMEs about the positive aspects in the enterprise world, including rising employees, decreasing nations' debt, and the rising number of startups and business owner confidence. However, with the state of the economy in a constant flux, he has stressed that leaders will need to adopt "new approaches and methodologies" in order to survive.

"As banks supporting businesses with investment are not coming back anytime soon it's important to consider alternative sources such as crowdfunding - using small amounts of capital from a large number of individuals - and peer-to-peer lending," Urquhart-Stewart told the news source.

In a recent column for The Telegraph, Gerard Lyons, chief economic adviser to the mayor of London, made similar suggestions - particularly with regard to the need for more short term lending. Lyons advocated three main components that will help the U.K. economy bounce back: spending, lending and change.

He suggested an extension on the Funding for Lending Scheme, but that likely won't be enough to finance the U.K.'s rapidly growing startup sector. This where alternative short term lenders, which tend to employ PRBC scoring methods, could play a major role.