By Claire West

Banks’ reluctance to lend means UK SMEs continue to bear brunt of recession, according to Clifton Asset Management

Banks have broken their promise to increase lending to small businesses under the Government’s much-trumpeted Enterprise Finance Guarantee Scheme (EFGS), it has been claimed.

According to official figures the amount of cash filtering through to UK SMEs in the year to March 31 was significantly less than the previous year through the EFGS and its predecessor, the Small Firms Loan Guarantee Scheme.

“This was supposed to be a major plank in the Government’s response to the banking crisis and freeze in lending,” said Mark Johnson, corporate finance and lending manager at Clifton Asset Management, which provides specialist financial and strategic advice to SMEs. “However, it is failing those in dire need because of the banks’ continued contempt for small businesses and reluctance to lend.”

When the EFGS was launched in January, following the worldwide credit crunch and subsequent recession, it was heralded as the way forward to enable a range of businesses to continue accessing the funds they desperately needed to keep trading.

But, according to figures released by the Department for Business, Innovation and Skills, the 2,360 loan guarantees worth £177.8m which businesses received was significantly less than the £205m guaranteed the previous year and well short of the £1.3bn budget set by the Government.

“These figures back up the huge store of anecdotal evidence we have received from business owners who again and again report that it is near-impossible for them to access finance from the banks,” said Mark Johnson.

“One of the major obstacles appears to be the lack of consistency in the way banks assess applications for financial help and some are even enforcing their own self-imposed lending criteria on top of the criteria set out by the Government, such as demanding personal guarantees from businesses or only dealing with their own customers.”

The DfBIS numbers mirror the Bank of England’s own figures which show that new lending to companies continued to contract in May following a fall in April.

Both sets of figures are in line with Clifton Asset Management’s own recent survey of more than 1,000 business owner-managers which revealed that just 1 per cent had received any sort of finance through the EFGS.

Mark Johnson added: “Until the Government gets tough with the banks to make them more focused on the needs of their customers I’m afraid nothing will change and small businesses — the backbone of our economy — will continue to bear the brunt of this recession.”

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