Despite Warnings by Government, Banks in UK Fail to Provide Lending to SMEs

Posted on August 3, 2010 by

Amidst the reports that the Government is acting tough with the banks that fail to provide affordable lending to small firms, the SMEs are still finding it difficult to get access to the finance. This was reported by Forum of Private Businesses. A green paper entitled, ‘Financing a Private Sector Recovery’ stated that banks failing to increase lending to businesses would face penalties imposed by government. These measures were taken, to boost lending to small businesses. The main reason for decline in the success rate of SMEs is due to lack of access to credit.

Other survey by the Forum that is, latest Economy Watch survey, reveals that contrary to the claims made by the lenders, a significant latent demand is not being met by the lenders.
Forum’s survey conducted in July stated a decrease in loan facilities for 358 members of Economy watch member Panel, by £66,000 in the last month, and decrease in overdrafts by £34,500. The above figures are very alarming, when the requirement for external finance is £1,057,000, per month, as recorded in January 2010.

Of all, only 1% (down from 3% in May) of respondents feel that the access to finance has improved and 15% (4 times the number in May) said it has worsened, while 4% reported a decline. 67% have seen no changes in their access to finance.

Majority of the declines have been seen in cases of overdrafts, with some businesses quoting more than 50% reductions and outright cancellations to their overdraft facilities. However, the biggest individual reductions are reported to be rejection of loan applications and the withdrawal of credit.

It was found that, banks are making false claims that there is no demand for lending. The reports say that demand is certainly there but the banks fail to meet the demands. This is making it hard for SMEs to find access to credit, which is very essential for business growth, specifically in the present situation, where the economic recovery is under threat.

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