'Trust still a problem' as banks boost lending

They lent 53 billion in the second quarter, up 12 per cent on the first three months of the year.

The rise comes after a sharp warning to the banks from Business Secretary Vince Cable in June and means they are more than half-way to meeting their overall lending target of 190bn for this year.

There was an increase in lending to small firms but they have received only 46 per cent of the 76bn earmarked for them and small business leaders remained unimpressed by the latest figures.

David Frost, director-general of the British Chambers of Commerce, said targets should not be the sole measure of how well small business lending was performing. He noted the breakdown in relationships between banks and businesses, and the changes lenders are trying to implement to counteract that. "The benefits will not be seen overnight, and there are other issues that need to be addressed as a matter of priority," Frost said. "Firms have lacked confidence in seeking finance for fear of being turned away."

His comments are backed up by figures from the Federation of Small Businesses, which in a survey earlier this year found that only 20 per cent of its members had applied for credit during the 12 months to June. Of these, one-third had been refused.

"That tells you that despite these headline figures, businesses are having trouble getting the financing they need," said Colin Borland, the FSB's head of external affairs in Scotland.

"There remains a problem of trust between businesses and banks. Businesses don't want to go knocking on their door for fear of what they will be told."

Garry Clark, head of policy at the Scottish Chambers of Commerce, said: "We are not asking the banks to go back to 2007 but there is still a gap there, and there is a gap in terms of good businesses with good business plans that can't get finance."