Squeeze on bank loans hits small legal firms

Britain's small law firms are the latest to feel the squeeze from constraints on bank lending, an independent finance provider said today, with the number of sole-practitioner solicitors falling by almost a tenth over the past 12 months.

Syscap also warned that the smaller end of the legal industry was heading for another crunch moment, with significant tax bills to be paid at the end of this month. There are now just under 3,700 single-partner law firms in Britain, down from just over 4,050 a year ago, a fall of 9 per cent.

Philip White, the chief executive of Syscap, said the biggest single reason for the decline was that cash-strapped small legal firms were finding it very difficult to get affordable credit from the banks – and thus being forced to shut or merge at the first sign of cashflow problems.

Mr White warned that the Government's attempts to reduce spending on legal aid would only add to the difficulties faced by many in the profession. And he warned that many were struggling to pay even the most pressing bills. "Prior to the recession virtually all of our funding for law firms was to enable them to expand – to buy IT or books of business," he said. "Now most of the demand is to fund tax payments or deal with other short term cash flow issues."

Syscap's warning is the latest contribution to the debate over whether Britain's banks are doing enough to support all small businesses. Under Project Merlin, the banks were set targets for lending to small and medium sized enterprises, but look likely to miss them over the year.