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Lending to small firms cut by a third

30 July 2010

Lending to small firms cut by a third

Bank lending to small businesses in June was over a third lower than in the previous year, despite the British Bankers’ Association (BBA) claiming that its members were making loans of around £27m to small businesses every day.

More than 11,000 new loans were provided to small businesses in June, for a total value of £598m, according to figures out today. The longer working month meant that the number of loans were around £70m higher than in April and May.

But compared to last year the level of lending has dropped by 31 per cent when loans totalled £867m.

And so far this year the current monthly average for lending to small businesses is around half the amount banks lent two years ago. In 2008 around £991m a month was lent to small businesses, but this has now plummeted to a monthly average of £564m.

David Dooks, BBA statistics director, said: "On a daily average basis, banks are making available around £27mn of new term lending to small businesses each working day. Over the past twelve months, nearly £7bn of new, long-term lending has been provided."

However, these figures were attacked by the Forum for Private Business who called the banks’ strategy of maintaining they were lending "distressing".

A spokesman told Credit Today: "Contrary to what many of the banks have been saying these BBA numbers prove what our members have been saying for so long: that lending has decreased and it is decreasing markedly."

He added: "It is distressing that the BBA is stressing in the first event the amount of money it is lending when the real story is the trend that shows lending is going down and considerably decreasing."

The BBA said the average new loan granted to a small business was for £50,000 and had a 10 years duration, on variable interest rates.

The group said that an average number of 2,200 new banking relationships were established each working day in June, giving a monthly total of 49,000 small businesses opening their first account from a business product range.

Nearly 300,000 new relationships between banks and small firms have been established this year so far. Roughly 3.9 million small businesses have current, deposit or loan accounts with high street banks.

Small businesses’ cash holdings in their current and deposit accounts have continued to rise in recent months, to a record total of some £56bn at end-June- which the banks say is the reason for lending figures dropping.

Dooks said: "The £46bn outstanding level of term loans and £8.5bn level of overdraft borrowing are remaining fairly stable: subdued volumes of new lending are offset by loan repayments from businesses seeking to reduce financing costs and reliance on borrowing by operating out of cashflow. In fact, over the last four months, small business deposits have grown by £2.5bn".

The banks have recently faced renewed pressure to lend to small businesses after business secretary Vince Cable warned that bonuses could be linked to lending.

The Treasury and Department for Business, Innovation and Skills launched on Monday a consultation to explore a wide range of financial opportunities for small businesses.

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