Lending to small businesses has plummeted

The British Bankers Association (BBA) has said that lending to small- and medium- sized businesses fell by £382m in the last three months of 2012. Equally, figures from the Bank of England show a decline in general bank lending volumes in the same period, with net lending dropping by £2.4b compared with the previous three months.

Banks are facing increasing pressure to improve business lending in the wake of the Funding for Lending scheme launched last August, which allowed banks to borrow £14b in low interest loans for the purpose of passing on such favourable rates to its own borrowers. Banks are arguing that the problem is on the demand side, putting forward the view that small businesses are choosing not to borrow and instead pay down their debt pile.

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