Finance funding still tough for small businesses

Small businesses are still finding access to finance tough, the Forum of Private Business has said as it welcomed Government moves to free up lending.

The Forum's July survey of 358 members on its Economy Watch show loan facilities declined by £66,000 over the past month, while overdrafts were down £34,500.

In all, just 1% of respondents said access to finance has improved, compared to 3% in May, and 15% said it has worsened — almost four times the number in May when 4% reported a decline.

The majority of the cuts were to overdrafts, with some businesses reporting reductions of more than 50% and even outright cancellations to their overdraft facilities. However, the biggest individual reductions came in the form of rejected loan applications and the withdrawal of credit.

This deterioration comes despite an anticipated requirement for external finance of £1,057,000 per month, recorded in January 2010.

"Contrary to what some of the banks are saying, some firms are still not able to access the finance they need and both business growth and economic recovery is under threat as a result," said the Forum's head of policy Matt Goodman.

"According to our members, demand is certainly there but lenders are not providing the funding or the levels of service that they should be. They are telling us that creeping costs and charges are making finance that is available less accessible."

He added: "Our research shows that the Government's green paper is timely in addressing lending as part of its move for a private sector led recovery.

"As with exploring alternatives to traditional lending, a 'carrot and stick' approach to encouraging banks to lend is sensible, providing the carrot offers a genuine incentive and the stick is a real deterrent."