A third of small and medium-sized (SME) retailers and almost a fifth of large retailers have experienced a reduction in bank lending in the last three months.
The findings are part of the British Retail Consortium’s (BRC’s) Quarterly Credit Conditions Monitor published today (Friday).
For those respondents who cited a fall in lending, over two-thirds of SME retailers said it had undermined their ability to trade and of these 60 per cent have reduced staff levels. Three-quarters of large retailers who reported a fall in bank credit reported they reduced stock levels as a result.
Despite the Bank of England keeping interest rates at historic lows for the last five months, 44 per cent of SME retailers reported the cost of bank lending has increased over the last three months. The availability of credit will determine how quickly the UK economy emerges from the recession.
More than half of large retail respondents said the reduction or withdrawal of trade credit insurance had adversely affected their business. Of those, more than three-quarters said it had led to problems with up to a quarter of their suppliers.
The BRC welcomed last month’s announcement that the trade credit insurance top-up scheme is being backdated to 1 October, but is calling on the Government to extend the date to 1 April 2008 – when insurers began removing cover as the downturn began.
Jane Milne, BRC Business Environment Director, said: “As the Government launches its employment schemes, it’s outrageous that some retailers are being forced to let staff go because of a lack of affordable credit.
“The poor availability of bank credit is undermining stock levels and retail employment. We understand the banks’ current cautious approach to lending, but there’s no reason why they need to stop loans to fundamentally sound businesses.
“I’m shocked to hear that over forty per cent of SME retailers said banks had increased the cost of lending in the last three months. We should all be doing our bit to help speed the recovery. How can these increased charges be justified?
“For retailers to survive the current tough trading conditions and keep staff in work they need have to have the right stock on their shelves. This is especially important in the run up to Christmas – the most important trading period for most retailers.
“Extending the trade credit insurance top-scheme will help, but we’re calling on the Government to extend the scheme to last April – when the recession started to bite.
“It’s clear from the BRC Monitor that the majority of respondents are not confident of trade credit insurers’ ability to assess risk accurately. The Association of British Insurers’ Codes aren’t improving underwriting – as they were meant to. The Government must put more pressure on these insurers to undertake proper research to ensure more accurate underwriting decisions.”
Notes :
The full results of the BRC’s Quarterly Credit Conditions Monitor are available to journalists from the BRC press office.
Why trade credit is important
– Trade credit insurance protects suppliers who sell goods on credit to companies, such as retailers, against the risk they will not get paid.
– If credit insurance is withdrawn, suppliers demand to be paid upfront.
– This can leave retailers short of stock, create cash flow problems for retailers and cost jobs as retailers seek to divert funds from wages to paying suppliers.
– Banks also use retailers’ insurability as one of the criteria for making lending decisions.
