Bank of England’s warning over personal loans

by Jul 27, 2017Financial News, Small Business News

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This week Bank of England officials warned that the sharp rise in personal loans could pose a serious danger to the UK economy.

BoE's warning over personal loans

According to the Bank of England’s financial stability director Alex Brazier, the number of outstanding car loans, credit card balances, and personal loans has risen by 10%. This is in contrast to just a 1.5% increase in household incomes.

During Brazier’s speech at the University of Liverpool’s Institute for Risk and Uncertainty, he voiced concerns that high street lenders aren’t being cautious enough about who they’re lending to.

Brazier said:

“Lending standards can go from responsible to reckless very quickly…The sorry fact is that as lenders think the risks they face are falling, the risks they – and the wider economy face are actually growing.”

Personal loans and SMEs

Why is this warning of import to the altFin sector?

The answer is twofold; firstly, anything that affects household expenditure has a direct effect the UK economy and the success of UK businesses. Secondly and more directly, a recent study of SME funding conducted by Close Brothers showed that “47% of SMEs have used a personal credit card for their business and 19% do so regularly”.

If, as Brazier suggests, high street lenders are not lending responsibly, and a percentage of SMEs are using personal loans in the form of credit cards to support their business, it follows that some of those businesses will be at risk.

Just last month the BoE demanded banks increase their finances against the risk of bad loans, warning that they would take further action should they deem it necessary to protect against bad debt.

Banks have been told by the Bank of England to set aside £11.4 billion over the next 18 months, to safeguard borrowers who may struggle to keep up with repayments in the future.

How can the altFin sector help?

We offer UK companies an alternative to using personal credit to finance their business growth. Our Bootcamp also helps SMEs to prepare for a funding round. If they meet our criteria, they will be able to put their investment offer to our network of investors.

By putting in place stringent due diligence measures such as the checks CODE Investing use to assess potential borrowers. Our due diligence process has the aim of decreasing the level of risk for investors. We do this by performing a number of stringent checks on each business seeking capital before they can be approved and added to the platform.

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