Slight rise in bank lending to UK small businesses

Official figures from the British Bankers’ Association (BBA) show that UK banks lending to small and medium-sized businesses increased by £235 million to £54.2 billion in January 2009.

This increase in lending is nevertheless extremely modest both compared to the same period a year ago and also in relation to the volume of money that’s been pumped into British banks to encourage them to lend to the SME sector.

Even the BBA’s own statistics expert, David Dooks, said:

There have been net rises in term lending to small businesses each month since last Autumn, albeit at levels below last year’s monthly average, reflecting subdued business investment in the economic downturn.

While business investment may well be subdued, the banks’ relative lack of lending continues to cause major headaches for businesses of all sizes and there’s some evidence to suggest deposits are being used to deal with cash flow issues.

The BBA’s figures show that small business deposits in January 2009 fell by £1.5 billion.

Forum of Private Business chief executive, Phil Orford, commented:

Although deposits do decrease in January in line with tax payments, in one month they fell by almost double the amount in the first quarter of 2008.  In the past four months to January, deposits fell by £2.3 billion. In the same period, net lending has increased by a mere £76 million.

This disparity shows the urgent need for real liquidity measures. At present, many small businesses are having to find this vital cash flow with little, if any, support from the banks

It will be interesting to see whether the Bank of England’s new attempts to stimulate credit markets through ‘quantitative easing’ (put bluntly, pumping more money into the economy) affects bank lending figures over the next few months.

[Picture credit: tanakawho licenced from Flickr]