Banks lending more to small businesses, claims BBA

The British Bankers' Association says lending to small firms rose by £153m in May

15 July 2009 16:13

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The amount of money lent to small businesses by the high street banks increased by £153m in May, the British Bankers' Association (BBA) claimed today.

According to the BBA, deposits also increased by £250m, while more than 45,000 new small business banking relationships were struck up.

“The small business sector saw another monthly increase in its borrowing from the high street banks in May, while reduced trading activities and greater control of liquidity were reflected in increased deposits and little-changed overdraft levels,” said David Dooks, BBA statistics director.

However, official figures from the Bank of England showed that new lending to companies actually contracted in both April and May.

The news also followed reports of a shortfall in the amount of loans being granted to small businesses through the government’s Enterprise Finance Guarantee (EFG) scheme.

Under the scheme, the cornerstone of Labour’s response to the credit crisis for businesses, the government guarantees up to 75% of loans to eligible companies.

Earlier this week, The Telegraph reported that businesses received 2,360 loan guarantees, worth £177.8m, in the year to March 31 via the EFG (which launched in January) and its predecessor, the Small Firms Loan Guarantee Scheme (SFLG).

This was significantly less than the £205m guaranteed in the previous year by the SFLG, which was widely criticised for being underused.

“These figures back up the huge store of anecdotal evidence we have received from business owners who again and again report that it is near-impossible for them to access finance from the banks,” said Mark Johnson, corporate finance and lending manager at Clifton Asset Management.

“One of the major obstacles appears to be the lack of consistency in the way banks assess applications for financial help and some are even enforcing their own self-imposed lending criteria on top of the criteria set out by the government, such as demanding personal guarantees from businesses or only dealing with their own customers.”

The Department for Business, Innovation and Skills (BIS) has since said that the figures reported by The Telegraph do not include any of the loans guaranteed under the EFG. However, the government has yet to confirm how many EFG loans were approved before March 31.