Banks still failing to lend to small businesses

British small businesses suffered a dramatic drop in successful loan applications between 2007 and 2010.

Successful applications from the fast-growing young companies known as gazelles fell the most, dropping from 90 per cent to just 50 per cent in 2010, according to the Office for National Statistics.

The decrease in funding for these companies will particularly concern the government as it hopes for growth to repair the country’s finances.

Overall successful requests for financing from banks by small and medium enterprises fell from 90 per cent in 2007 to 65 per cent in 2010.

The figures will fuel ongoing calls for the coalition to do more to boost lending.

This year’s ‘Project Merlin’ involving the country’s five largest banks was intended to do so but has had little impact.

The plan saw the banks commit to a 15 per cent increase in lending to SMEs, but data since published show this has not happened.

According to the ONS the decline in bank lending was sharper in the UK than in large European neighbours Germany, France and Italy.

The proportion of loan applications turned down reached 20.8 per cent in 2010 compared to just 5.6 per cent in 2007.

The figure was worse than in all but five of the 19 EU states polled.