Lending to small businesses rose by £391 million in June, according to the British Banker’s Association, whilst almost 50,000 new small business banking relationships were established. In addition, deposits from small business grew by £577 million.

Commenting on the data, BBA statistics director, David Dooks, said:

“These figures provide more evidence of the high street banks’ support for small businesses. Structured term lending rose by £366 million in June, while deposits and numbers of new business relationships continued to hold up, perhaps reflecting improved business confidence in trading conditions.”

But speaking to the BBC yesterday, Chancellor Alistair Darling said, “I am extremely concerned about what the banks are doing for small companies.”

“What companies are being charged seems to have gone up relative to what they have to pay.”

In response, the BBA released a statement to explain why lending to businesses costs banks more, despite the Bank of England base rate being at an all time low:

“Banks continue to be the major source of business finance and are increasing their support for small businesses.

“Banks lend when and where borrowers are likely to be able to repay their debts. Commercial customers have to demonstrate loans can be repaid and banks will only be able to lend where businesses have enough paying customers coming through the door to finance repayments.

“The cost of borrowing reflects more than the Bank of England base rate. Banks costs have gone up and there is less left to lend.

“Government imposed capital requirements mean banks are already holding liquid assets and capital at around twice internationally agreed levels and this ties up funds which cannot then be lend out as well. More people default in recessions and banks also take longer to get their money back as they help customers by rescheduling repayments.

“Banks are paying relatively more for their money as a result of both competition for savings and scarce and expensive wholesale funding. The cost of funds the authorities made available through the Credit Guarantee Scheme is also expensive at a time when returns on loans – arising from the very low interest rate environment – are lower.”