Banks continue to fail to lend to SMEs

Chris Wheal

Mar 11th 2010

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table showing lending withh 2008 figures much higher

Banks' lending to small businesses in January was just £543m, up on the seasonally low December figure of £511m, but lower than November's £573m and down by nearly a quarter on the same month last year when banks lent £669m.

Not only that, loans to small business fell by £151m and the rise was because the much more expensive overdrafts rose by £168. This is terrible. In my view, there are lies, damn lies and the British Banking Association's director of statistics. He - David Dooks - put a positive spin on these dire figures.

Dooks said: "The start of this year saw the monthly value of new lending remain above £500mn a month." Remain above £500 - and by the skin of the BBA's teeth.

Lending is, in fact, up

"Lending to this particular part of the business sector has grown by 2% over the last year, even with the winter months seeing the usual lower demand for bank finance and comparisons with the same time a year ago showing relatively weaker lending," Dooks said

This 2% increase, he explained to Daily Finance, was in the value of loans outstanding. New lending in January this year was, indeed, nearly 25% lower than in January 2009.

"Trading conditions for small businesses continue to be difficult, but after December's seasonal low number of new relationships, it is encouraging to see small businesses opening bank accounts in similar numbers to previous months," Dooks said.

The figures show that there were 44,445 new banking relationships in January this year. Although up on the traditionally quiet December it was also down on November (45,109) and on January a year ago (45,693).

Overdrawn

On overdrafts, Dooks said: "A rise in overdraft lending in January was consistent with a similar rise a year earlier. A significant fall in deposits was partly a reaction to an unusual large rise in December (as businesses retained cash), and partly the usual fall seen at the start of a year."

The graph produced does not compare lending in January 2010 with January 2008 because the BBA did not collect monthly figures in those day, only quarterly.

But any reasonable person can only take one message from these statistics and it is not the positive one Dooks make. The reality is the banks are still letting down small businesses.

FSB response

The Federation of Small Businesses (of which I declare, I am a member) agrees: John Wright, national chairman said: "Many small businesses have seen an increase in the cost of existing finance and are unable to access credit from the banks.

"The FSB-ICM annual survey of 10,000 small businesses showed that 41% of members has had to dip into personal savings, 43% used overdrafts and 21% used a personal credit card.

"The fact that such a high percentage of members are resorting to self-financing gives us cause for concern that small businesses are struggling to get access to credit from commercial sources."

The government needs to do more to get the banks lending again.

Reader Comments (Page 1 of 1)

3-11-2010 @ 1:35PM

Stephen said...

So much for the ' prince of darkness ' Peter Mandleson ... and the help he said he would give to small businesses . Like the ' child catcher ' in Chitty Chitty Bang Bang .. remember him , talks a lot and makes promises but ' imprisons ' the small businessman with yet more legislation and red tape . Why not simply lower the margins that banks charge ... the base rate is 0.50 % yet many businesses pay 20 times that , if not more .

3-11-2010 @ 1:57PM

Patrick Neylan said...

Good piece, Chris. Too many press officers think they can fool journalists by smothering them with statistical blather and hope they'll take it at face value.

A friend of mine was doing a piece for The Observer on "books that influenced your career", so as an ex-journalist I gave her 50 words on Darrell Huff's "How To Lie With Statistics".

3-11-2010 @ 4:18PM

John said...

So much said above is true. Its about time that the uk banks realised that without the UK small businesses that are crucified for using their services; they and their ridiculous salaries & bonuses would have been sunk ages ago! Its a long time past that they should have recognised that they owe for their continued existence to those in small businesses that graft their backsides off through extremely long hours to keep the bankers (sorry,,, did I spell that right?) on their cushy palacial seats. If they can't see that; they should shut their doors and let the real world takeover!

3-12-2010 @ 3:47AM

Keith Sherwood said...

Our overdraft facility has not changed, but before if we needed a short term increase it was always granted - now it is never granted. The result is that we are working to manage without any support in the future. In the beginning of the credit crunch suppliers lead times (which are up to 90 days and more) suddenly shortened and far too many goods in, gave us a short term problem. We got no help from the bank despite pleas, good business results,no reduction in turnover or profitability, and a stable business with low overheads
We had to put all suppliers on frequent part payments and saved the day
But never again will we trust or rely on the bank as they behaved irrationaly and not according to precedent.
The constantly changing of staff; and relationship and top managers in Banks business centres is an annoyance as no one knows you or gets to know you
Keith

3-13-2010 @ 7:15AM

gary said...

The banks are ruining/have ruined everything,now they have been bailed out they are not only not lending but calling in existing lending,moving the goalpoasts on existing deals,writing back valuations on agreed lending,all the time increasing lending criteria causing much borrowing to be hi cost personal funding or "sub prime" ie missed one payment in the last year,used to be called a CCJ! its the only way they can get a return beacause rates are so low,selfishly strangling the economy....in my opinion the worst is not here yet.
I have been with my buisness bankers for 20yrs have a ltv of 26% have never missed a payment and cannot get a penny,also they never authorise a small increase on my O/D frequently returning previously authorised payments they actually are tightening up not lending more.
G