Small Business Lending Has Halved

Written on June 14, 2011 – 1:38 pm | by Michael Harris

How often have we told that the secret of economic recovery is to get banks lending to small business again? But wasn’t Project Merlin doomed to failure if the banks weren’t sanctioned if they didn’t meet their lending targets?

Of the £19bn that should have been lent to small and medium-sized companies over the first quarter of the year, only £16.8bn was actually sent their way. The trouble is, it’s very important to actually look at the worrying figures offered by the Bank Of England (pdf), and not solely rely on the commentary from City hacks.

The information we should be most concerned about is:

“Official data covering lending by all UK-resident banks and building societies indicated that the stock of lending to businesses contracted by around £5 billion in the three months to February (Table 1.A). Data from the five major UK banks indicated that their net lending to businesses was -£2 billion in 2011 Q1.“

- Bank Of England – Trends in Lending April 201 – pg. 4

And if you split out SMEs and then just small businesses (lending by seven UK lenders to commercial businesses with an annual bank account debit turnover of up to £1 million) then the figure is even more shocking:

To quote the report (page 7):

“The BIS data indicate that the annual rate of growth in lending to SMEs has been negative since late 2009 and fell to -3% in February 2011 (Chart A). Data published by the British Bankers’ Association (BBA) indicate that the growth rate of lending to small businesses, defined as turnover up to £1 million, stood at -6% in December 2010, the latest available month for which these data are available. Annual lending growth to small businesses on this definition has been more negative than for the SME segment since June 2010.“

- Bank Of England – Trends in Lending April 201 – pg. 7

Surely this cannot be helping us get out of the mire? If the economy has only grown by 0.5 per cent in the latest quarter and the British press being negative as a result, surely the only solution is to put greater pressure on the banks to be more generous? What’s stopping them?

January and February saw more than 100,000 small businesses open accounts with the main banks – there are small businesses starting up, we’re seeing a growth in the number of inquiries in our own services, so what is preventing banks lending? Why has new term lending to SMEs fallen from £900m in October 2010 to £450m in February 2011 (British Banking Association figures)? They’re not all securing Angel Investment are they? Our eight Regional Managers have not heard of ONE company getting any bank capital, and they each meet six high growth companies a day!

So forget the politics of banks not reaching their Project Merlin targets, think about the total net figure of lending to small business. It’s contracting and contracting fast.

Worth a read:

p.s. did you attend the first London Angel Club Pitching Event? Let us know what you thought!

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