Business Loans Continue to Decrease

British businesses continue to have difficulty in securing loans. Indeed, the Financial Times reports that lending to non-financial companies continues to fall, declining as banks remain wary of providing capital to businesses in this time of recession. Banks remain concerned about their own balance sheets as foreclosures continue around the world.

This trend of decreased business lending is also apparent in the United States. It is harder for companies — especially if they are small to medium sized companies — to get the financing they need to keep things going. Loans are a vital part of corporate finance. Often, the expenditures, from payroll to equipment purchases, associated with running a business are too large to be covered from the cash on hand. Loans help smooth the cash flow, and ensure that there is enough capital until the profits start coming in.

In the end, the global economic recovery is likely to be slowed by the fact that businesses can’t seem to get the financing they need. However, once credit conditions ease up, banks should be more open to helping businesses with their capital needs. But it will take some time to prove to the money lenders that the economy is back on track. And it will take some improvement in bank balance sheets as well.

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