Banking figures confirm decline of small business lending
August 1st 2010

The Forum of Private Business has responded to the latest figures from the British Bankers’Association (BBA), which show that lending to the UK’s small firms is in decline.

The banking trade association’s figures indicate that new loans to small firms increased by £75 million between May and June 2010, but year-onyear term lending has decreased by £269 million, compared to June 2009.

Average monthly loans have declined by almost half since 2008, when banks lent an average of £991 million to small firms. In 2010, the average monthly loan rate is £564 million.

In addition, overall lending has decreased significantly in 2010 despite small businesses increasing deposits into banks by £2.5 billion over the past four months.

Matthew Goodman, head of policy at the Forum of Private Business said:“Our own research shows that both loans and overdrafts have decreased since the start of June – at a time small businesses need more finance in order to expand.

The Forum's latest Economy Watch survey shows that loan facilities for members on the member panel declined by £66,000 during the past month, while overdrafts decreased by £34,500.

Recently, the Government’s business secretary Vince Cable hit out at ‘misleading' banks' claims that, despite demand for lending being low, approval rates are high. In a green paper entitled ‘Financing a Private Sector Recovery' banks could face penalties for failing to boost lending to small businesses.

The National Association of Commercial Finance Brokers (NACFB), which is in August publishing its annual survey covering SME finance, said there had been a significant reversal in slight improvements to the availability of finance recorded at the start of the year.

Speaking to the Forum,chief executive Adam Tyler said: “Evidence from NACFB commercial finance brokers,both anecdotal as well as from the initial results of our 09/10 survey, taken in conjunction with the Bank of England’s own figures, suggest that credit is still extremely difficult for businesses to access.

“There was certainly a loosening of funding and a slight relaxation of criteria at the beginning of the year – but this closed off again just after the general election, and shows little sign of reopening.

He added:“The Treasury report,‘Financing a Private Sector Recovery’ states that SMEs are vulnerable due to their reliance on bank finance and the problems this has caused.And the Bank of England’s own ‘Trends in Lending’ report states that ‘the flow of net lending to UK businesses remained negative in May and was more so than in April.

According to research carried out by the Open University Business School earlier this year, supported by the Finance and Leasing Association, 16% of SMEs needed to replace old equipment or invest in new equipment to expand but were unable to do so, with lack of finance a significant factor.The organisation said that too few businesses are exploring alternatives to traditional bank lending.

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