Having said that, the rate of decline has been slower this year than last, when lending dropped by 6.1 percent, and there have been signs of recovery in the financial sector that should have a positive impact going forward.
The British Bankers Association (BBA) said last week that lending to non-financial businesses showed a £1bn drop in September, while there was a 7.7 percent fall in loans and overdrafts.
In addition, the announcement of the Government’s proposed business bank is not being seen as the antidote to lending woes by the forecasters, as the fear is that it would merely replace the loans already being made.
There are also concerns that the amount of finance available through the business bank is inadequate, as the proposed figure of £10bn would mean that the bank would run out of funds within six months.
According to the Bank of England, high street banks lent £44.2bn to businesses in the first quarter of 2012, but 38 percent of applications were rejected. However, to bring the rejection rate down to the pre-crisis level of 11 percent, it has been suggested that an extra £19bn of funds are needed.
Small businesses are also sceptical about the Government’s Funding for Lending Scheme (FLS), which was designed to allow banks to borrow from the Bank of England at preferential rates and then pass these rates on to small businesses and homeowners.
However, the fear is that the banks will use the funds to build up their own capital reserves and still only lend to ‘safe bets’, leaving the majority of small businesses needing finance.
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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