Loans to small businesses fall as banks miss lending target (From Andover Advertiser)

Loans to small businesses fall as banks miss lending target

9:29am Tuesday 14th February 2012 in Hampshire Business By Matt Smith, Politics and business reporter

Loans to small businesses fall as banks miss lending target

THE number of small businesses that have used a bank overdraft or loan has fallen in the past two years, according to a new survey by the Federation of Small Businesses (FSB).

The revelation comes as official figures yesterday revealed that lending by Britain’s top five banks shrank every quarter last year in an embarrassing blow to the Chancellor’s Project Merlin agreement.

The Bank of England figures confirmed that Lloyds Banking Group, Royal Bank of Scotland, Santander, Barclays and HSBC together missed gross lending targets for small businesses in 2011 by more than |£1 billion, although beat the target for all businesses by £24.9 billion.

Royal Bank of Scotland, which is 83 per cent owned by the taxpayer, was the culprit for the shortfall in small business lending after the other four lenders confirmed they had beaten their targets.

But RBS chief executive Stephen Hester defended the bank, saying that its total lending was close to that of all the other banks combined.

Britain’s top five banks had agreed to increase the lending available to small and medium-sized enterprises (SMEs) to £76 billion this year and boost lending available to all businesses to £190 billion.

Polling more than 11,000 members, the FSB survey found that only 35 per cent of members used an overdraft in 2011, 11 per cent a secured bank loan and seven per cent an unsecured bank loan – a drop of eight, three and four per cent respectively since 2009. One third of respondents had used savings or inheritance to fund their Business.

Among businesses one to two years old, 70 per cent used savings and inheritance for funding, 34 per cent got money from friends and family, and only one quarter used a bank overdraft.

Ken Moon, chairman of the FSB’s Wessex Region, said targets were the “wrong instrument to encourage lending and growth”.

He said: “Even though overall lending is above target, this shows that money is going to bigger businesses and not new and fledgling firms that need it to take advantage of growth opportunities that are there even in these challenging times.

“Our research in the last two years shows that around a third of businesses are refused credit and this could be reflected in the fact that newer businesses are using more of their own money to fund their business rather than turn to the banks for help.”

Mr Moon called for better promotion of the alternatives available for the Government to implement its plans to help small businesses access finance on better terms.

The British Bankers’ Association (BBA) said the overall lending figure demonstrated the banks’ commitment to help businesses and pointed to Bank of England data that showed SMEs’ demand for credit had fallen in three out of the last four quarters.

Barclays said it exceeded targets by 13 per cent last year, handing out |£43.6 billion of new lending to businesses, including £14.7 billion to SMEs.

Chief executive Bob Diamond said the bank had supported 108,000 start-ups and returned 1,900 existing businesses to health.

Part-nationalised rival Lloyds Banking Group also beat its target after lending £12.5 billion to SMEs, compared with its £11.7 billion benchmark.

Santander UK lent £8.7 billion to businesses in 2011, a 25 per cent increase on the previous year and exceeding its target of £6.7 billion. Of this, £4.3 billion went to smaller firms – £300 million more than its target.

The Project Merlin agreement will not be repeated this year. The Government plans to launch a credit easing programme, which will initially see £20 billion made available over the next two years under a National Loan Guarantee Scheme, which will issue new low-interest loans and overdrafts to businesses with a turnover of less than £50m.