Business

Lending to UK businesses fell across all sectors in the third quarter of 2009, Bank of England statistics have shown, leading to increased fears of a stifled economic recovery.

Overall, bank lending fell by £4.6bn, resulting in the lowest annualised growth rate of total lending to UK businesses (-14.3%), since the monthly series began in 1999.

The figures could have been even worse, were it not for strong lending to the real estate sector, on the back of a recovery in land prices, which accounted for nearly 50% of all lending to private non-financial corporations during September.

Mark Halstead, Red Flag director at Begbies Traynor, said that the results were impacted by the holiday period, which he said made a "big impact" on business.

UK banks predicted that "demand would remain subdued" for the rest of the year, however some reported increased signs of competition in the marketplace.

However, Halstead said that confidence appeared to be lacking in the banking sector which he said was "disappointing".

Smaller businesses in the UK have been dealt a further blow by the decline of syndicate lending among banks, increasing competition for loans from larger businesses.

Around the mid-decade, a number of banks would club together to lend to larger businesses, particularly in leveraged buyouts, reducing individual risk.

However, an exit of foreign banks from the UK market has reduced the prospects for syndication. In July 2007, almost £50bn of syndicated lending was made to UK businesses – that figure stood at just £3bn last month.

Halstead said that many private equity houses, which were among the main beneficiaries of the surge in syndicated lending, are currently struggling to refinance debt.

He added that there was around £400bn of debt that needed refinancing in the next three years.

So far, banks have favoured debt-for-equity swaps to resolve covenant breaches and required refinancing. However, Halstead said that this may not be the case for much longer.