SMALL businesses are borrowing less, which could threaten their future growth, the Federation of Small Businesses (FSB) has warned.
New figures from UK Finance on Thursday showed that bank lending to non-financial businesses fell by £698m in July.
And the FSB’s latest Voice of Small Business Index shows that only 14 per cent of small firms applied for external finance in the three months to June.
“These figures confirm that small business borrowing is down, corresponding to lower investment intentions and confidence levels,” said the FSB’s national chairman Mike Cherry.
“Only one in seven small firms are currently applying for external finance, with demand for bank loans falling significantly over the last year, although this is not driven by a switch to alternative lending.
“These trends add to a convergence of factors that could threaten small business finance, investment and growth ambitions in the medium-term.”
Cherry cited recent reports that the European Investment Fund (EIF) and European Investment Bank (EIB) are withholding funds from the UK, while the Funding for Lending scheme ends in January.
This makes the government’s extra commitment of resources for the British Business Bank and a national investment fund even more important, he said.
“A botched withdrawal from the EIF and EIB would turn a currently mixed outlook into a decidedly bleak one,” he said. “We need to see small firms confident to apply for finance for growth, with the government clearly mapping out what will eventually replace the half a billion pounds of EIF support received in recent years.”
At the start of this month, the UK government outlined plans for a new national investment fund to replace EU funding to British start-ups after Brexit.
The proposed new fund is part of a consultation titled ‘financing growth in innovative firms’, which will assess whether start-ups have access to the finance they need. It has identified a £4bn funding gap between American firms and British firms, which the national investment fund will help address.