The latest Bank of England "Trends in Lending" report reveals that a further contraction in funding available to SMEs, combined with unjustified hikes in the cost of finance, are causing small firms to conserve cash on deposit for 2012 - which in turn means free money for banks (my emphasis added):
"The major UK lenders stated that credit availability to SMEs remained unchanged or had eased. Most major UK lenders reported that their expectations for SME credit conditions during 2012 were less optimistic than their expectations six months ago. Under this outlook, which they attributed to current economic uncertainties, SMEs were expected to continue to have a reduced risk appetite and to be cutting back on investment and non-essential spending.Meanwhile, loan pricing by banks "continued to drift upwards", notwithstanding that:
Concerns about credit availability have been reported, however, by business contacts of the Bank’s network of Agents. Contacts of the Agents reported that credit conditions continued to be tighter for SMEs compared to larger corporates. Small businesses and new business start-ups still found it difficult to gain access to credit. The Bank’s Agents also reported that some small firms were holding sizable cash balances because of concerns about the continuing availability of overdraft facilities. They reported that some small firms were reluctant to approach banks out of concern for an increase in the cost of existing borrowings, or reductions in overdraft limits, and sometimes had resorted to the use of personal loans instead."
"Default rates and losses given default were reported to have fallen for both small and medium-sized firms over the past six months, although some pickup in these quantities was expected in 2011 Q4 for medium-sized firms. Most major UK lenders, however, reported little evidence so far of deterioration in their existing SME credit portfolios."