The amount of lending given to small businesses has dropped by £400m throughout the second quarter of this year, according to the latest Trends in Lending report from the Bank of England.
The drop, which relates to net lending through the Government’s Funding for Lending (FLS) scheme, represents the second quarterly decrease this year. It adds fuel to the fire in what has been a growing push to better support underfunded SMEs, as a main driving force behind the UK’s recovery.
The FLS scheme was created to bolster SMEs and spur growth, and the Bank’s report also shows that it is failing to benefit large firms, with lending down £3.9bn to corporates in the three months to September 30.
“Net lending to small businesses is still falling, which is disappointing given their immense importance to the economy,” said Samir Desai, founder of Funding Circle. “Traditional banks are hamstrung by legacy issues, limiting their capacity to lend.”
Meanwhile, the latest Credit Conditions survey has also shown that credit availability for small businesses has dropped, with demand for credit outstripping availability.
Samir added: “The unprecedented level of demand we are seeing from creditworthy firms at Funding Circle suggests it’s not demand for finance that is falling, but instead demand for traditional bank loans.”
Many SMEs are now seeking alternative forms of funding, including peer-to-peer business lending, and many have criticised the government’s lack of official support.
Marcus Grimshaw, chairman of the National Association of Commercial Finance Brokers, said: “Government initiatives – such as the SME lending referral process – need to be pushed to the top of the agenda to ensure that UK businesses ripe for growth don’t suffer due to lack of funding.”