Small firms' borrowing grows

Banks lent £33 billion to small businesses last year, an 11 per cent increase on 2004, according to figures released by the British Bankers' Association (BBA).

The BBA's monitoring of the main banks servicing the SME market provides the following picture of support for small businesses in the UK over the 12 months to the end of December 2005.

• Term lending had risen by 11 per cent over the year, to £33.3bn. A year earlier, annual growth was running at around 19 per cent.
  
• Overdraft lending had risen by 10 per cent over the year, to £8.8bn. The annual growth rate was virtually unchanged from a year earlier.
  
• Deposits had risen by six per cent over the year, to £41.3bn.
  
• During 2005, some 515,000 small businesses established first banking relationships.
  
• Forty-one per cent of small businesses now use online banking.

BBA deputy chief executive Sally Scutt said: "Half a million new banking relationships during last year demonstrate the banks commitment to providing services and appropriate finance for small businesses. Though annual growth in structured term lending decelerated during 2005, probably reflecting last year's challenging business environment, deposit growth held up, so that at the year-end, the net position of the small business sector was in balance."

In recent years, the proportion of borrowing on overdraft by small businesses has declined. Term loans are more prevalent, with well over three-quarters of term lending having a maturity of more than three years, with interest charged on a variable rate basis.