Fall in lending to small firms casts further doubt on banks' pledges

Bank lending to small businesses fell in the first two months of this year – casting further doubt on the banks' pledges to increase credit made under the Government's Project Merlin agreement. New loans to small and medium enterprises (SMEs) fell to £949m in January and February from £1.06bn a year earlier, according to figures from the British Bankers' Association. The number of new loans also fell sharply.

Britain's big five banks agreed in February to increase lending to SMEs by 15 per cent to £76bn as part of a wider plan to boost credit to companies. The SME element of the deal was seen as the most important because those businesses account for more than half the economy and have found it more difficult than bigger companies to raise new capital.

The BBA's figures tally with Bank of England data last week that showed SME lending fell in February.

The big banks have argued that SMEs wary of the rocky economy are holding off on investment, hitting demand for credit, and that they are happy to lend to viable businesses. But the Business Secretary, Vince Cable, increased pressure on the banks on Wednesday by accusing them of discouraging borrowers as they work to clear up balance sheets.

"People ask a preliminary question at their local bank and they're discouraged from applying. That is a real problem," Mr Cable said.

He warned that the banks could face further government action if they did not keep their pledge.

John Walker, chairman of the Federation of Small Businesses, acknowledged that demand from SMEs was down but said more than a third of FSB members who asked for more credit were refused.

Mr Walker added: "With the Business Secretary highlighting the need for small businesses to have access to finance, we hope that the banks will not place restrictions on lending.

"They should work with the businesses that come to them for help to assess their needs – even if they are refused formal lending – so that they can lead the private sector-led recovery that the economy is counting on."

Barclays bosses told shareholders on Wednesday that the bank's lending so far was on track to meet its Project Merlin commitment. Bob Diamond, the chief executive, said: "Lending is what we do."

The Bank of England's first-quarter Credit Conditions Survey showed a sharp fall in SME loan demand because of bad weather and economic uncertainty but predicted a pick-up in the second quarter.

The BBA's statistics director, David Dooks, said: "Lending trends in the first two months of this year appear stable, albeit below the corresponding time in 2010, but in line with the findings of the Bank of England's recent Credit Conditions Survey which found that credit demand from small businesses had fallen sharply."

So much for no demand

While other banks blame lack of demand for the fall in SME lending, Santander says it is picking up their clients to boost its business. The bank increased SME lending by 29 per cent in the first quarter.

Steve Pateman, head of business banking, said: "There are businesses that want to expand, invest in new facilities and take on working capital, but that is proving difficult with their existing banks, which are lending by numbers – they are kind of open for business but within very clear parameters."

Mr Pateman added that businesses were finding credit too restrictive or expensive elsewhere and that Santander was adding customers while taking on less risk than in the boom of 2005-06.

News
Emma Watson has become the latest target of the 4Chan nude hacking scandal
peopleThreats follows actress' speech on feminism and equality at the UN
News
Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
Sport
David Moyes and Louis van Gaal
football
Arts and Entertainment
Rita Ora will replace Kylie Minogue as a judge on The Voice 2015
tv
PROMOTED VIDEO
Life and Style
tech
Life and Style
Alan Turing, who was convicted of gross indecency in 1952, was granted a royal pardon last year
life
Arts and Entertainment
Sheridan Smith as Cilla Black and Ed Stoppard as her manager Brian Epstein
tvCilla Episode 2 review: Grit under the glamour in part two of biopic series starring Sheridan Smith
Life and Style
life
Arts and Entertainment
Tennis player Andy Murray's mum Judy has been paired with Anton du Beke for Strictly Come Dancing. 'I'm absolutely delighted,' she said.
tvJudy Murray 'struggling' to let Anton Du Beke take control on Strictly
Life and Style
Vote with your wallet: the app can help shoppers feel more informed about items on sale
lifeNew app reveals political leanings of food companies
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
The cover of Dark Side of the Moon
musicCan 'The Endless River' carry on the tradition? See for yourself
Sport
New Zealand fly-half Aaron Cruden pictured in The Zookeeper's Son on a late-night drinking session
rugby
Extras
indybest
Voices
A new app has been launched that enables people to have a cuddle from a stranger
voicesMaybe the new app will make it more normal to reach out to strangers
Arts and Entertainment
Salmond told a Scottish television chat show in 2001that he would also sit in front of a mirror and say things like,
tvCelebrity Trekkies from Alex Salmond to Barack Obama
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee / Experienced Recruitment Consultants

£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Quantitative Risk Manager

Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...

Day In a Page

Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits