SMEs reduce borrowing on worries over economic slowdown

City A.M. Reporter
Small and medium-sized businesses (SMEs) cut back on borrowing in the past quarter, a survey showed today, highlighting the government's uphill struggle to boost economic growth by unblocking the flow of credit.

Britain entered its second recession in four years in late 2011 as government spending cuts and the Eurozone debt crisis have weighed on growth.

Small businesses have been particularly hard hit as banks, facing higher capital requirements, rein in lending. Various government schemes aimed at improving the availability of financing have so far failed to boost the economy.

The quarterly SME Finance Monitor, commissioned by the Business Finance Taskforce, found 43 per cent of the 5,000 SMEs surveyed in the second quarter used external finance such as bank overdrafts, loans and credit cards, down from 50 per cent in the first three months of the year.

Looking ahead, 35 per cent of the firms cited the economic climate as the biggest barrier to running their businesses versus 11 per cent who considered access to finance as a major obstacle.

"There remains limited appetite for external finance, both looking back over the past year and forward to the next three months," said Shiona Davies, director at BDRC Continental, which carried out the survey.