Businesses blame economy for low lending figures

Banks’ excuses on small business lending are actually beginning to look believable, after the (admittedly bank-funded) quarterly Business Monitor said that businesses are now blaming the dodgy economy for their reluctance to borrow. As anyone who runs a small business is painfully aware, until now, when challenged on their low lending figures, banks have shrugged their shoulders and muttered something about there not being enough demand, while businesses have pointed out that it could have something to do with the sky-high cost of borrowing. Does this finally get banks off the hook?

Not quite: while the survey showed that only 2% of small businesses were looking for credit during the period (a third – that’s about 1.5m – said they were funding themselves out of their own cashflow), of those, about 70,000 had their applications for overdrafts rejected, while another 54,000 loan applications were rejected. And the figures suggested that banks are more inclined to trust businesses they had worked with before: just a third of first-time overdraft applications were successful, which doesn’t exactly compare favourably with the 96% of renewals that were approved. And 150,000 small firms said they couldn’t even be bothered to ask. For many, that’s because the bank had told them there was no point.

With figures like that, it’s not exactly surprising that banks missed the Project Merlin small business lending targets they agreed with the Government last year. According to figures, they lent just over £1bn less than they had promised to small businesses than over the first three quarters of the year. The Government is, naturally, in something of a quandary: on the one hand, it wants to force banks to lend, thereby encouraging businesses to create jobs and grow. On the other, it needs to keep the City sweet. So the fact that most businesses now think the economy’s too shaky to warrant them borrowing is probably a bit of a godsend…

For businesses, though, the short-term looks bleak: just 13% said they were looking to borrow in the run-up to Christmas (to pay for the extra stock for the shopping frenzy that’s looking less and less likely to take place), compared to a fifth earlier in the year. So Christmas might be a lot less merry than many had hoped.