Small businesses are still struggling to access funding from banks, despite the government’s Funding for Lending scheme,  the latest Trends in Lending report has found.

The Bank of England report, published yesterday, shows lending to SMEs through the government initiative fell by £400 million in the second quarter of the year.

The FLS was developed to help banks release loans more cheaply, with a specific focus on SMEs. Large businesses have also suffered, with lending to corporates through the scheme down by £3.9 billion in the last three months.

The government has published draft legislation introducing new measures to support smaller businesses get the funding they need to grow. Better support is needed to guide them to alternative lenders if big banks turn them down.

Andrea Leadsom, the economic secretary to the Treasury, said:

“A key part of our long term economic plan is to ensure that small businesses are able to access the finance they need to grow and succeed.

The best way to deliver this is to increase competition in the sector and remove the barriers to new sources of finance for SMEs. That is why the legislation we’re introducing today is so important, as it will help ensure businesses that want to borrow, and lenders that are ready to lend, can easily find one another.”

The lending fall over the last six months is less steep than in previous quarters, however. Over the previous three months, lending dropped by £700 million. Although the drop does continue to reflect the lack of available finance for SMEs.

Marcus Grimshaw, chairman of the National Association of Commercial Finance Brokers, told the Telegraph that banks must do more to support Britain’s growing businesses. He said:

“Government initiatives – such as the SME lending referral process – need to be pushed to the top of the agenda to ensure that UK businesses ripe for growth don’t suffer due to lack of funding.”

Credit availability for SMEs has also fallen with demand for credit now far exceeding availability, the latest Credit Conditions survey has shown.

A recent report from the Federation of Small Business found that 52% of small firms find the availability of credit “poor” or “very poor”, while 50% say credit is unaffordable.

Photo by Chris Isherwood