Net Bank Lending to Small Businesses Falls

Bank lending to businesses fell by £2.3bn in the three months to August, new BoE figures show.

Bank lending to small and medium businesses fell in the three months to August, according to figures published by the Bank of England today.

The Trends in Lending report showed that net lending to businesses of all sizes fell by £2.3bn. 

The news raises questions over the effectiveness of the government's Funding for Lending scheme and will add to calls for banks to open up more to small companies.

John Hoskin, of SME accountants CleverAccounts.com, said: "As ever SMEs are still finding it harder to secure funds from the banks. While SMEs can now turn to alternative forms of finance, they still have fewer options than larger companies, who can always go cap in hand to the capital markets or consider asset-based finance.

"Many smaller businesses, by contrast, just haven't got the the assets and security the banks are looking for.”

On the other hand, banks claim that there is a reduced appetite from some well established SMEs for more credit as they are keen to bootstrap and wary of the risks of borrowing. 

The figures suggest an increasing number of SMEs repaying their debts, which can make net lending figures look worse than they are. 

Anthony Browne, chief executive of the British Bankers Association yesterday said: "Net lending is down because many SMEs are deciding to pay off their existing debts - which presumably they are doing because it is good for them. New lending is growing, but it is outpaced by debts being paid off." 

Increasing numbers of firms are also turning to alternative funding sources like P2P lending, crowdfunding and asset finance as an alternative to banks. 

Adam Tavener of pensionledfunding.com said: "We can only continue to seek a more collaborative approach to lending, which will allow traditional funders to provide a broader range of credit opportunities that will maximise the chances of supporting the businesses now keen to be a part of the UK’s resurgence.”

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David Cameron’s £2,000 tax cut for small businesses

The Prime Minister will highlight Coalition plans to give businesses a new “employment allowance” to reduce their employer national insurance bills.

Big companies could also face fines if they delay payments to small suppliers, the Prime Minister will disclose.

Mr Cameron will present the policies as evidence that the Coalition is backing small firms, “the lifeblood of our economy”. His move comes after Ed Miliband, the Labour leader, sought to appeal to small businesses, promising to cut their business rates by increasing corporation tax for big firms.

Legislation for the new tax allowance will be published today. Downing Street said the measure, promised in this year’s Budget, will benefit 1.25 million companies, 450,000 of whom will no longer pay any national insurance. Over 90 per cent of the benefit of the allowance will go to small businesses with fewer than 50 employees, the Government said.

Speaking to business leaders in the east of England, Mr Cameron will stress the Coalition’s commitment to small firms. “It’s businesses that get wages in people’s pockets, food on their tables, hope for their families and success for our country,” he will say. “Small business and entrepreneurs are the lifeblood of our economy and this government is firmly on their side.”

Mr Cameron will also promise to address a persistent complaint of small firms: the time big customers take to pay them for goods and services.

Some surveys show that 85 per cent of small and medium-sized companies have recently experienced problems with late payment. Katja Hall of the CBI said that late payment is a serious issue for all businesses “but particularly for smaller firms, as cash flow is their life blood”.

Although there are rules that companies can use to compel bigger firms to pay more quickly, many smaller companies do not use them “for fear of falling out with their customers,” she said.

Mr Cameron will unveil a range of measures ministers are considering to push big firms to pay up more quickly.

Persistent late payers could effectively be named and shamed under new transparency plans, to highlight good and bad records on payment.

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