Compared with other European economies the amount of loans being given to small businesses by UK banks is low. In the last few years the number of loan approvals for small to medium-sized enterprises has fallen greatly. Official data that has recently been released shows the need for the government to encourage lending to small businesses.
This information has been published by The Office for National Statistics and also shows that the number of applications for loans has increased. This counters a view held by some people that the demand for loans has shrunk. Between 2007 and 2010 the amount of approved loans to SMEs fell by over 25%. In other major European economies such as France, Germany and Italy lending to this type of company also fell to a lesser extent. Ireland saw the greatest reduction at almost 50%.
The Chancellor of the Exchequer, George Osborne, has promised that the government is going to be more supportive of SMEs in the future and is currently devising a plan to increase lending to small businesses. Project Merlin is the current scheme to support small business lending and the figures here are from before this project was launched.
The governor of the Bank of England, Sir Mervyn King has recently said that the amount of borrowing by SMEs has dropped by about 5% in the last year which suggests their financing situation became worse in 2011.
There is still some debate over whether it is the banks who have stopped lending or just that businesses want to borrow less money. A statement issued by the British Bankers Association has said, “Right now small businesses are paying back the loans they have taken rather than asking for new loans, there is a lack of demand in the market and this is why the amount of lending to small businesses has dropped.”
The sector that has seen the greatest fall in loans being issued is communication and information services, where the proportion of successful loan applications has dropped by nearly 50%. Other sectors that have been affected particularly badly are construction and industry. At the other end of the spectrum small businesses involved in technical, scientific, and professional services have been the least affected with loan approvals only dropping about 20%. The statistical data was gathered from over 2000 businesses in the UK and information was also gathered in several other European countries.