Belfast Telegraph

Banks' new lending to small firms falls by 10%

By Peter Cripps

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 £1m or less totalled £3bn in the period - equivalent to a monthly average of £506m, according to the British Bankers' Association (BBA). This compares with £3.4bn 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were also hoarding cash reserves rather than investing their money amid fears that their overdraft facilities could be withdrawn at short notice, the Bank added.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 £332m-a-month in the first half of 2011 as firms paid off their debts amid fears the economy could slip back into recession.

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

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, 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."

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