Lending to small firms 'falls 10 per cent'

The amount of new lending to Britain's small businesses fell 10% in the first six months of this year, banking industry figures have shown.







New loans for firms with a turnover of £1 million or less totalled £3 billion in the period - equivalent to a monthly average of £506 million, according to the British Bankers' Association (BBA). This compares with £3.4 billion lent in the same period a year ago.



The data will fuel pressure on the banking industry, which has pledged to increase the availability of credit to small and medium sized businesses in its Project Merlin agreement with the Government.



The Bank of England said previously there was evidence companies found it difficult to gain access to credit in September and that when loans were available, fees were high and the application process was often drawn out.



Firms were also hoarding cash reserves rather than investing their money amid fears that their overdraft facilities could be withdrawn at short notice, the Bank added.



The BBA said overall net lending had contracted by about £332 million a month in the first half of 2011 as businesses paid off their debts amid fears the economy could slip back into recession.



The trend has helped small business deposits rise to a record £58 billion.



BBA statistics director David Dooks said: "This reflects the appetite of small businesses to pay down their borrowings and, in an uncertain environment, with trading confidence fragile, build up cash reserves."



The Bank of England's report, which is based on interviews with bosses, agreed with the BBA, but added that small firms were still finding it difficult to get loans, with sectors that were being hit by weak consumer demand, such as retail, particularly badly affected.



The BBA said banks had 17 commitments to help small businesses under the Better Business Finance initiative, including a newly-established code of principles for lending; an independently-monitored appeals mechanism; free business assistance through a UK-wide mentoring network, and the Business Growth Fund to help growth businesses bridge the equity gap.



A spokesman added: "Banks are at the table and ready to make the necessary changes to increase business confidence by freely giving them the help they need to get their financial applications right."







John Walker, chairman of the Federation of Small Businesses, said: "The figures speak for themselves - no matter what the banks say, small businesses just aren't getting the funds they need.



"It is vital that the Independent Commission on Banking's recommendations to improve competition are implemented within this Parliament and a new specialist bank for small businesses is created to ensure that small firms can get the finance they need to lead the recovery."



He added that, in the 12 months to June, a third of small firms which applied for finance did not get the credit they needed and 31% of those have "missed their growth opportunity" as a result.



One in five small businesses believe they are at a competitive disadvantage, he claimed.







A Department for Business spokesman said: "The Government wants to see the banks working hard to improve their relationships with small business.



"What is really important is to see a substantial rise in the quantity of lending that banks make available to small businesses, as set out in the Merlin agreement.



"We must see significant improvement over the next few months. We are monitoring the banks' performance extremely closely and if they fail to meet the commitments they have agreed, we will examine options for further action."

PA

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

£16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

Day In a Page

Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones