Bank lending favours 'safe' big businesses

LENDERS put the squeeze on small businesses during the first three months of the year, the Bank of England said yesterday.

The Bank's latest survey said credit spreads – the difference between funding costs and lending rates – for small firms "widened a little" in the first three months of 2010, despite improving for larger companies.

Lenders said credit demand from small firms had been higher than expected. The Bank's findings come despite political pressure on banks to make finance available to small businesses.

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In last week's Budget, part-nationalised Royal Bank of Scotland and Lloyds Banking Group pledged 94 billion in loans for struggling businesses in the coming year, with nearly half the total going to smaller firms.

The survey said the credit made available to small businesses was "little changed" during the past three months. The dearer credit on offer to small companies was in contrast with narrowing spreads for bigger players as banks looked to lend to lower-risk businesses.

"Consistent with increased competition, some lenders commented that the limited number of attractive lending opportunities was beginning to feed through into pricing levels," the report said.

The overall outlook for credit demand would hinge on the strength of the recovery as well as action to tackle the UK's huge deficit, banks said.

In last week's Budget, the Treasury announced the creation of a Small Business Credit Adjudicator with statutory powers to ensure small businesses are treated fairly when applying for loans.

Business Secretary Lord Mandelson said: "These worrying figures show the real pressure being put on viable companies struggling to access bank finance. Small businesses are the key to the economic recovery."