Sources of finance - bank loans down by £28 billion

An interesting statistic here which savvy students will add to their notes - particularly those who want to demonstrate real-life evidence to their examiner.

According to statistics from the Bank of England, the amount of bank loans outstanding to UK businesses is now £471 billion, down from a peak of £503 billion in September 2008 (the month in which Lehman Brothers went bankrupt). Thats a pretty significant change in absolute terms, although the percentage change is less pronounced.

Nevertheless, that’s a big chunk of bank finance which is no longer on the combined balance sheets of UK firms. Students ought to be able to identify several reasons for the shift, including:

• Reluctance of banks to lend to firms during the recession / credit crunch
• A strategy of cash conservation by many firms, who cut back on dividends, capital spending and operating costs in order to reduce their debt and gearing