Banks miss small business lending target

Bank of England figures show small business lending fell by £1.7bn in third quarter

The amount of money lent by high-street banks to smaller businesses fell by £1.7bn in the third quarter of 2011, according to a new report from the Bank of England.

The report reveals that the major lenders provided £18.8bn to small and medium-sized firms in the three months to September – compared to £20.5bn in the previous quarter.

Furthermore, the study shows that the banks lent £56.1bn to smaller enterprises in the first nine months of 2011 – almost £1bn short of the target they agreed under Project Merlin, the high-profile deal brokered by the government in February.

Although the banks have repeatedly expressed their intention to increase lending to small businesses, their approach has come under intense criticism in recent months, with many questioning the effectiveness of the Merlin agreement.

These latest figures are sure to intensify the criticism. John Walker, national chairman of the Federation of Small Business, condemned the banks for “yet again” missing their small business targets, and highlighting the “lack of competition” within the banking sector.

Walker added: “We need to see a clear change: more competition and new lines of credit opening for small firms if they are to help boost the recovery.”

In response, a spokesman for the British Bankers’ Association claimed there were extenuating circumstances for the low lending figures, saying that “the overall economic environment remains challenging and business demand remains weak”.

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