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SMEs experiencing a decline in existing credit lines, CBI report shows

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SMEs have experienced a 12% decline in the availability of existing credit lines and expect a similar tightening during the next three months, according to new research from the Confederation of British Industry (CBI).

The CBI's Access to Finance survey questioned 73 companies between 15-24 July 2009 and found that the supply of new credit for SMEs had improved by about 8%.

Richard Lambert, CBI director-general, said: "Smaller- and medium-sized businesses are still facing challenging credit conditions and have fewer funding options open to them than big companies."

However, the report found that companies with more than 5,000 staff experienced a strong rise in new credit availability during the past three months.

In addition, the report found that businesses were still struggling to secure trade credit insurance, despite the launch of the government's top-up scheme in April this year and its recent extension in June.

Under the terms of the scheme, suppliers can purchase six-month top-up insurance from the government if credit limits on their UK customers are reduced.

However, the CBI survey found that 57% of companies questioned thought that credit insurance availability had worsened during the past three months.

Lambert said some form of export credit support scheme could help the situation, but with trade credit insurance continuing to prove hard to come by, companies must try to reduce their reliance on it. 

James Bowker, account director at broker Aon, said he had seen "some indications" in recent weeks that credit insurers were demonstrating an appetite for writing risk again in the lower risk sectors, as well as individual risks within it.

He said: "Unfortunately, the paper sector is not in this category and credit insurance appetite remains limited. Claims continue to pour in and, at this point, I cannot see any improvement ahead."

"Good communication and the provision of up to date financial information provides the best opportunity to maintain and even restore credit insurance cover," he added.

Elsewhere, SMEs reported that finance is increasingly being linked to base rate instead of LIBOR. More than half reported a rise in the cost of new finance during the past three months and 50% said that overdraft availability had worsened.

 

 

Business