Lenders reported higher defaults among small business borrowers in the first quarter and anticipate higher defaults again in the second quarter, as the prolonged impact of the pandemic takes its toll.
The Bank of England’s quarterly credit conditions survey questions banks and non-bank lenders about the previous three months and the coming three months, to gain greater insight into the credit market.
In the latest survey, lenders reported higher default rates on loans to small businesses in the first quarter, while default rates remained unchanged for medium and large businesses.
Defaults are expected to increase for small and medium businesses in the second quarter, but were predicted to remain unchanged for large businesses over the same period.
“A quarter of the small businesses we surveyed in February said they are on ‘borrowed time’ and are fighting to survive and so this news sadly does not come as a surprise,” said Maddy Alexander-Grout, founder of small business national discount scheme MyVIPCard.
“Even when things return to a relative normal, things will be far from normal as so many smaller businesses will be paying off the debts they have accrued and loans they have taken out during the pandemic for many years to come.
“The latest national lockdowns either stopped small businesses being able to trade completely or the impact has been so severe that they aren’t even covering costs.”
Lenders said that the overall availability of credit remained unchanged for small- and medium-sized enterprises in the first quarter, but increased slightly for large firms. Overall availability of credit is expected to rise slightly in the second quarter.
Demand for small business loans fell in the first three months of 2021, while demand from large businesses rose and demand from medium-sized businesses was unchanged.
Demand for credit is expected to increase across all business sizes in the second quarter.
Meanwhile, lenders reported the availability of secured credit to households increased in the first quarter and they expect this trend to continue in the second quarter.
They said that the availability of unsecured credit to households dropped slightly in the first quarter, but this was predicted to rise over the next quarter.
In the first three months of 2021, the net percentage balance for changes in default rates on secured loans to households increased and for unsecured lending decreased slightly. Both were forecasted to rise in the second quarter.
Read more: Mortgage market remained strong in January
Lenders reported that demand for secured lending for both house purchase and remortgaging dropped in the first quarter but was expected to increase in the second.
They said that overall demand for unsecured lending was unchanged in the first quarter but this was predicted to rise in the second.