By Alex Evans, Editorial Director, National Business Awards

As the Bank of England reports another quarterly decline in lending to small and medium enterprises (SME's), the British Bankers Association claims it’s because of falling demand; but is this really the case?

The Bank of England's latest Trends in Lending report found that overall lending to businesses fell by £2.3bn in May, following a £1.1bn decline in April. However, the British Bankers' Association (BBA) attributes this fall in lending to declining demand as businesses focus on reducing debt rather than borrowing.

Speaking at our last Growth Summit organised by the National Business Awards in June, the CEO of the London Chamber of Commerce, Colin Stanbridge, said that businesses were more likely to pay off debt than borrow to fund growth — but is this really the case across the UK?

Ian Perry, an Ipswich-based business adviser and owner of Remedy For Business Ltd, told NBA that: "The banks have become risk averse and appear to have a policy of only loaning to perfect companies (who will always get finance). For many other companies who are having to build up their own cash reserves it is a struggle, and that will continue. My concern is that this rebuilding will take time and whilst companies are doing it they are surviving not growing, and the UK economy will do the same.”

Business coach and adviser Stephen Robinson, owner of Clear Business Thinking in Croydon, observes that businesses are borrowing less. "One of the biggest contributing factors for businesses refusing to borrow is the interest rate being applied and the level of arrangement fee. Sadly the upper hand remains with the financial institutions.

“It is fair to say the savvy owners are playing the bank at their own game, as reducing the debt means reduction of charges. Reduction of charges means better cash-flow. Better cash-flow can lead to purchasing tactics. All of which can lead to better profit margins, which you can save with a friendlier bank. The managers will soon get the message they are about to lose a profitable account.”

Offering a perspective from a bank that increased its business lending last year at the London Growth Summit in June, Steve King, Regional Head of Corporate Finance at Santander, was clear about who is likely to be offered funding. “We have to look beyond forecasts and projections to what will drive growth and mitigate risk,” he said. “Regardless of sector, we invest in good businesses which have good management, maturity of vision, and a clear idea of costs and how they will service their loan.”

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