Credit still proving elusive for smaller businesses

Figures released by the Bank of England have suggested that small firms are finding it as difficult as ever to secure lending from the banks.

The Bank of England’s latest credit survey found “little changed” in terms of bank lending to small businesses between the first quarter of 2010 and the last quarter of 2009.

This was despite the fact that demand for credit from small businesses grew more than anticipated in the first three months of the year; forecasts suggest that demand will increase further in the next quarter, too, with many businesses hoping to refinance existing loans.

The banks, particularly those part-owned by the taxpayer following the bailout, have been under pressure to up the level of lending to smaller, credit-starved firms.

In his Budget, the Chancellor, Alistair Darling announced that the Royal Bank of Scotland and Lloyds Banking Group would be offering £94 billion in business loans over the next 12 months, with almost half earmarked for SMEs.

The government is also in the process of setting up a credit adjudicator to make sure small businesses are treated fairly when applying for loans.

Lord Mandelson, the Business Secretary, 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.

“However, there is a perception among small business owners that banks are unfairly denying them credit. This task force will help us understand the root of these concerns.”

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