Banks still lending to small businesses despite 'crunch'

Despite the daily media coverage of the 'credit crunch', new data suggests that the major high street banks are still lending to small businesses. In fact, term lending actually grew by 11% in the year to June 2008.

The statistics, released by the British Banking Association, compiled using data from the major high street banks showed that term lending grew to £44bn in the twelve months to June this year. Overdraft borrowing also increased to £9.2bn (a rise of 3% on the previous period).

Interestingly, the number of new businesses opening their first business account compared well to the previous 12 months with 143,404 new business accounts being opened, compared to 145,063 in the year to June 2008.

Are the statistics really that rosy?

Although the data doesn't cover the period from July 2008 onwards, it does suggest that small companies still have access to bank finance, and that reports suggesting banks are not willing to lend have been exaggerated. However, given the latest banking collapses in the US, the data may not quite so rosy this time next year.

An interesting piece in The Telegraph also suggests that the BBA's statistics may hide the fact that small companies are not depositing as much cash at the moment, and the rise in term lending can be accounted for by bank managers encouraging business owners to convert overdrafts to fixed loans (quite possibly at high rates). You can read more here.

David Dooks (BBA Statistics Director) said:

"Banks are still providing finance to support small businesses in the slowing economy, despite the impact of the credit crunch on lenders. These figures reflect the economic climate for the small business sector, with borrowing continuing to expand, but deposit growth slowing. In the face of weaker trading conditions, businesses are using all the cash they generate, while those seeking finance are generally taking fixed rate structured loans or using previously agreed facilities."