Small businesses feel the squeeze as bank lending falls by £700m

 

The UK’s “broken” business finance system came under fire yesterday as Bank of England pundits showed that loans to smaller firms slumped by more than £700m in the first three months of the year, despite efforts to boost credit.

Threadneedle Street’s latest snapshot of its flagship Funding for Lending scheme (FLS) – refocused to encourage small business lending – fell £723m among the 36 bank and building society participants in the first quarter. Overall business lending fell an even greater £2.7bn between January and March, although this is partly due to some of those banks caught by the crisis shying away from commercial property lending.

The fresh blow for smaller firms comes as the Government prepares to announce plans for legislation in next week’s Queen’s Speech to force banks who turn down credit to small companies to refer them to alternative lenders. The Treasury wants to encourage alternative sources of finance to SMEs to prevent a lack of credit choking off any recovery.

John Longworth, director general of the British Chambers of Commerce, said: “It is concerning that lending to firms across the country has continued to contract even though the Funding for Lending scheme has been refocused towards business lending. This provides further evidence that Britain’s business finance system remains broken.

“Although more established firms have little difficulty in accessing the finance they need, the litmus test for the Funding for Lending scheme has always been whether young and fast-growing businesses are able to get the finance they need to expand and drive the recovery – and unfortunately many of these firms remain frozen out of the market.”

Phil Orford, chief executive of the Forum for Private Business, said the lending drop could have been even worse if not for the extension of the FLS, but added: “At a time when the economy is picking up there is no doubt the figures remain slightly disappointing.”

The Bank launched the FLS in August 2012 to allow banks to access cheap funding, as costs soared amid turmoil following fears of a break-up of the eurozone. The scheme has fallen far short of ambitions to grow net lending by £80bn, although lower funding costs have since reduced the incentive to tap the scheme. Banks and building societies have drawn down £43.3bn in total.

Participants are allowed to draw down £5 of funding from the FLS for every £1 of net lending to smaller businesses until January next year.  But the detailed data revealed taxpayer-backed Royal Bank of Scotland growing lending to larger companies by £774m at the expense of small businesses, where its lending sank £737m. Lloyds was the biggest lender to smaller firms, expanding loans by £536m, followed by Santander, up £179m.

John Allan, national chairman of the Federation of Small Business, said: “There needs to be a greater focus by government and financial providers on making it easier for small businesses to access finance. We have been calling for the banks to open up lending to small firms and for the Government to break up the financial market to generate more competition among high-street banks and alternative lenders.  However, today’s figures show that, in spite of credit being cheaper now, small firms are still coming up against invisible barriers to accessing finance.”

Start your day with The Independent, sign up for daily news emails
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

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?