Recovery blow as SMEs fail to take the credit

Britain entered its second recession in four years in late 2011 as government spending cuts and the eurozone debt crisis have weighed on growth.

Small businesses have been particularly hard hit as banks, facing higher capital requirements, rein in lending. Various government schemes aimed at improving the availability of financing have so far failed to boost the economy.

The quarterly SME Finance monitor, commissioned by the Business Finance Taskforce, found 43 per cent of the 5,000 SMEs surveyed in the second quarter used external finance such as bank overdrafts, loans and credit cards, down from 50 per cent in the first three months of the year.

Looking ahead, 35 per cent of the firms cited the economic climate as the biggest barrier to running their businesses versus 11 per cent who considered access to finance as a major obstacle.

“There remains limited appetite for external finance, both looking back over the past year and forward to the next three months,” said Shiona Davies, director at BDRC Continental, which carried out the survey.

The survey found that businesses applying to renew loans or overdraft facilities were markedly more successful than those seeking funding for the first time.

Just over a third of those who would have liked to apply for a loan but did not said either they assumed they would be turned down or felt discouraged after making an informal enquiry at a bank.

The latest plan to boost lending, the Bank of England’s Funding for Lending Scheme, opened on August 1.