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Small business loans declining

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Business lending contracted for the fifth month running in July as small firms continued to feel the sharp end of tighter credit conditions, the Bank of England revealed.

With approximately 500 small firms collapsing each week, new figures show that between July 2009 and July 2010 businesses paid banks £47billion more than they received in loans.

In comparison, during the second half of 2008, as Britain’s economy shrank banks handed out £12.5billion more in loans to businesses than they received in repayments.

The net repayment of £2.5 billion was an improvement on the £3.2 billion recorded in June, but the Bank’s latest Trends In Lending report highlighted that loans from major UK lenders remained subdued into August.

While credit concerns were easing for larger businesses, they remain tight for smaller firms and Business Secretary Vince Cable has issued a warning to banks that lending must improve to drag Britain’s economy up from the depths.

“I really do hope the banking community is listening. There is a potential train crash ahead,” he said this week.

Most companies have been seeking to down play debts in the wake of the recession, but smaller firms are being hit because they have fewer alternative sources of funding than large multinationals, said the bank.

“Contacts of the Bank’s network of agents noted that while credit conditions were easing for larger businesses, they remained tight for smaller firms,” the report stated.

The Bank has slashed interest rates to a record low of 0.5% and pumped £200 billion into the economy through quantitative easing – buying up assets with newly created money – to boost the money supply.

However, provisional data showed that bank and building society deposits fell by 0.2% month-on-month in August, to take the annual growth rate down to 1.8%.

Labelling bank lending as the “lifeblood of the economy”, Deputy Prime Minister Nick Clegg has called on banks to halt the abuse of taxpayer generosity, which allowed many financial institutions to survive the recession, and return the favour, not simply reward bonuses to employees.

“If you abuse the generosity of taxpayers who have provided, both directly and indirectly, a massive infusion of public funds to bail you out by awarding yourselves bonuses that will appear almost gratuitously offensive at a time when people are having to make sacrifices in terms of their pay and pensions” he said.

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Written by Andrew Hodges

September 27, 2010 at 9:37 pm

Posted in Comment, LinkedIn

Tagged with , ,

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