Bank lending still on the slide

Latest data confirms purse strings remain taut

The bank-funded BDRC Finance Monitor has released data suggesting that lending to UK companies is still in decline.

According to the survey, the number of firms using external finance "dipped to a new low" in the first three months of 2013. Thirty-nine per cent of SMBs – down from 51 per cent in 2011 – were said to be "actively seeking" credit – and the smaller the firms, the less likely they were to be benefiting from bank lending.

Phil Orford, chief executive at the Forum of Private Business, which is a member of the quarterly survey's steering group, said the results were not exactly a shock.

"But if this trend continues into Q2 and Q3, eyebrows may be raised. Despite all the talk recently of recovery, not to mention the government's ‘supercharging' of the Funding for Lending scheme, it seems likely the banks are still licking their wounds," he said.

"That may be the case for some time to come yet, but this pattern of decline cannot continue if we are to have meaningful growth."

According to BDRC figures, 40 per cent of firms were using bank finance in Q1 2012, compared with 32 per cent this year.

"What seems highly likely now is that any recovery this summer is going to come largely from firms spending their own stockpiled cash, but this is not sustainable in the long term.

"While three quarters are happy non-seekers of finance, there will come a point when they do need the help of lenders to grow. That could be the crunch point and be a problem in the making for years to come," opined Orford.

The BDRC data also said businesses were continuing to use alternative ways to access cash. Bank overdraft and credit card use by businesses has shrunk.