Banks have stopped lending to small businesses across 80% of the UK, according to figures from the leading high street banks.
The statistics were released by trade body the British Bankers Association (BBA) at the behest of the government.
They show banks are only lending to small businesses in 22 of 120 postcode districts and total lending dropped across every region of England, Scotland and Wales.
From next year, the government is demanding more detailed street-level figures so a small business lending map of the UK can be drafted for the first time.
It’s expected to show that banks are ignoring entrepreneurs and start-ups across great swathes of the country and concentrating on London and the South-East and some technology hubs, like Cambridge.
Business dragons
Instead, entrepreneurs are turning away from debt funding to offering shares in their companies to venture capitalists in a style of financing that follows the model of BBC TV’s Dragons Den.
The government is offering big tax breaks to business dragons that fund start-ups through the Seed Enterprise Investment Scheme (SEIS).
Investors swop cash for equity in return for tax relief on their income.
Chief Secretary to the Treasury, Danny Alexander said: “The government wants banks to show just how they are supporting business and the wider economy. It’s easy to say you are doing something, but publishing this data will show what they are actually doing.”
The BBA argues that banks help businesses by offering them advice as well as cash.
A spokesman pointed out they run mentoring schemes, an appeals system for businesses that have had funding applications turned down and work with other organisations to offer alternative funding.
SEIS funding
Critics say that this is just public relations spin and that banks have done little to help small businesses for some years.
Alex Macpherson, of venture capitalists Octopus Investments, said: “Entrepreneurs will say that banks have offered them little for a good long time now.
“Debt funding is often not the best way to finance a start-up business and servicing the debt can hold back growth. Equity funding from a venture capitalist is often a much better option and more money is becoming available for this as investors begin to understand the tax breaks that are available.”
Biotechnology business Oxford Genetics picked up £150,000 equity funding through SEIS from Mercia Fund Management as a recent example of a business dragons deal.
The cash will fund product development and an e-commerce platform for selling synthetic DNA.
