Bank lending to SMEs continuing to drop

Lending to small to medium-sized businesses (SMEs) has fallen again to its lowest level since 2006, the latest Item Club report has revealed. The UK’s high street banks lent £44.2 billion to businesses during quarter one of 2012. On this trend, lending for the whole of the year will have slipped by 4.6% down to £429 billion, a fourth consecutive annual fall. Approximately 38% of all loan applications are now being rejected as businesses struggle to see the impact of various funding initiatives bought in by the government to counteract a reluctance to lend by the major banks. Lending levels are unlikely to recover to pre-recession figures before 2016, the report also suggested. Senior economic adviser for Ernst & Young’s Item Club, Carl Astorri, felt that the new Business Bank launched by the government will prove insufficient: “Government schemes to increase lending may help a lucky few but, as banks are encouraged by regulators to store up more capital and to look again at their forbearance policies and so-called bad-loan books, most small businesses are going to continue to feel the squeeze”.

Alternative funding solutions for SMEs

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