Banks 'still avoiding lending to SMEs'

Britain’s banks are less willing than before the financial crisis to lend to small businesses, according to research commissioned by the Business Secretary, Vince Cable.

The findings by the National Institute of Economic and Social Research think-tank are at odds with bank claims that weak lending growth is due to firms’ unwillingness to invest, not their reluctance to lend. It said: “We control for firm risk and other relevant characteristics in our analysis and still find rejection rates for bank loans are generally higher in 2011/12 than 2008/9.”

The Government’s Funding for Lending Scheme offers banks cheap finance when lending to households and businesses, but much of the benefit so far appears to be going to home-buyers rather than small businesses.

NIESR said low-risk small businesses seemed to have borne the brunt of banks’ “credit rationing”, which took place through higher overdraft interest rates and outright rejection of loans.