The high street banks continue to lend less money to small businesses despite the government’s Enterprise Finance Guarantee Scheme which was meant to ensure that £1.3bn was made available.
In the second quarter of 2010, lending to SMEs and limited company contractors fell by another 20% over the previous quarter. The Department for Business confirmed that lending for small firms fell from £186m in quarter one to just £149m last quarter.
Overall lending under the Enterprise Finance Guarantee Scheme, which offers banks a 75% state guarantee, has fallen by 59% over the last year.
The FSB is now calling for a restoration of trust between banks and companies. The Federation believes that one of the main reasons why banks are not making finance available is the deterioration of close links between lenders and SMEs.
Andrew Cave, the head of policy at the FSB, said that businesses need to have a relationship of trust with their bank to give them the confidence to bid for contracts. Small businesses are no longer prepared to take financial risks because they feel their bank no longer understands them.
We need the banks to return to the old system whereby they help and work with small businesses, he added.
The FSB's comments come after the British Bankers Association revealed that a taskforce has been launched to look into the reasons why the UK banks are not lending to small businesses.
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