Small businesses are suffering due to a lack of credit from banks, with 39.1% more liquidations in the second quarter of 2009 than in the same period of 2008.

This comes after the Bank of England announced that lending to small businesses had dropped by £14.7bn in the same period, prompting trade bodies and government to urge banks to provide more finance.

“A variety of factors are contributing to soaring insolvencies, but they all lead to the same major symptom – a lack of cash,” said Forum of Private Businesses spokesman Phil McCabe. “Some banking bodies are claiming that lending to small businesses has improved following the government’s intervention but our research has consistently shown that demand for finance is not being satisfied by the supply from lenders. And when finance is available, it is often far too expensive.”

The British Retail Consortium echoed the call for better support from banks. In its Quarterly Credit Conditions monitor, it revealed that 44% of small retailers experienced increased lending costs in the past three months and that 33% of retailers had experienced a reduction in bank lending. Of those that had reported a reduction in lending, 66% said that it had undermined their ability to trade.

Chancellor Alistair Darling has also entered into a war of words with banks over the lack of lending to small businesses saying that the government did not stabilise the banking system because it felt sorry for them but so that it would provide credit for businesses to help economic recovery.

Angela Knight of the British Banking Association responded by saying that the demand for credit from small businesses had dropped off and that overall lending to British businesses continued to increase.

 

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