Small firms still struggling to secure lending

20 August 2010

Small businesses are continuing to find it difficult to borrow money.

According to the Bank of England's latest Trends in Lending report, in the second quarter of the 2010 loans to SMEs fell by 2 per cent on the year.

Although a decline in demand has helped to fuel the squeeze on credit, small businesses, the Bank said, are still facing obstacles in securing affordable credit.

The report noted: "Contacts of the Bank's network of agents noted that credit conditions for smaller businesses remained tighter than for large corporates.

"Some major UK lenders expected demand from SMEs to remain muted in the coming months."

The report revealed that the gap between the official interest rate and the rates charged by lending providers on loans to larger firms dropped slightly between April and June.

However, the gap remained steady on loans to SMEs.

The Bank said that the gap reflected "heightened credit risk and the relatively high cost to banks of raising longer-term funding".