Lack of bank lending still hampering small businesses in the UK

By DOMINIC JEFF
Published on 18/06/2012 00:00

SMALL businesses are facing a new credit crunch that is denting confidence and restricting growth even as the UK government launches an £80 billion scheme to boost lending.

In research published yesterday, the Federation of Small Businesses (FSB) said banks are rejecting more than four in ten firms that seek financing, hampering the economic recovery.

Andy Willox, the FSB’s Scottish policy convener, said: “The FSB has long argued that without more flexible, affordable finance provided by a wider range of players, any hopes of a sustained Scottish recovery will remain some way off.

“The will of small businesses to grow is there, but the money to enable them to do so seems elusive.”

The FSB gave a cautious welcome to plans by Chancellor George Osborne to boost bank lending to both individuals and businesses through an £80bn credit scheme to be administered by the Bank of England.

The programme, due to start within weeks, will see funds released to banks at very low interest rates – on the condition that they use the money to finance an increase in their own lending.

Bank of England governor Sir Mervyn King is also reported to have told banks they can lend out around £150bn he had made them stockpile as part of more stringent regulations.

However, the FSB said that small firms will only be able to access the finance they need when there is more competition in the banking sector.

It said there is a particular need for more players in Scotland, where the small business finance market is dominated by Royal Bank of Scotland and Lloyds Banking Group.

Willox said: “We welcome the Chancellor’s funding for lending scheme but it will be delivered through the banks. None of the previous bank-led schemes has been an unparalleled success in funding the real economy. This scheme must be different.”

The FSB’s latest quarterly confidence survey of more than 2,800 members found that confidence among Britain’s small businesses and entrepreneurs has fallen in every industry sector except those working in health and motor services.

Financial and real estate services displayed the strongest downturn in sentiment, while retailing, hospitality, leisure and entertainment all also showed sharp falls.

Despite the pressures, confidence remains in positive territory across UK – but only just. Scottish small businesses are less confident than at start of year but more confident than counterparts in London, Wales and Northern Ireland.

More than 50 per cent of UK small enterprises plan to grow their businesses over the next 12 months, despite the credit squeeze.

However, the proportion of firms looking to grow rapidly shrank from 10.9 per cent in the first quarter of 2012 to 7.2 per cent now.

One in five firms reported that access to finance is the main barrier to achieving their growth aspirations.

The FSB argues that the credit squeeze will reduce prospects for new job creation and further set back the UK’s struggle to emerge from recession.

Britain’s banks have long argued that they would like to lend more to business but are being hampered by a lack of demand from credit-worthy companies.