Who gets credit from our banks? Not small firms…

In July loans to SMEs (small and medium-size enterprises) fell £400m

According to the Bank of England there was £170bn of bank loans to SMEs in August (Yui Mok/PA)

The Bank of England released its monthly money and credit statistics today.

These confirmed that net lending to small firms is still not growing despite all the official assistance aimed at channelling bank credit to the sector, such as Funding for Lending (see my comment on that scheme from last week here).

In July loans to SMEs (small and medium-size enterprises) fell £400m. Excluding overdrafts there was zero lending growth in the month.

Yet as well as looking at the monthly change in the flow of lending it’s also useful to consider the stock. According to the Bank of England there was £170bn of bank loans to SMEs in July.

This pie chart shows how that compares with other sectors:

So SMEs account for just less than 10 per cent of the total stock of UK bank lending. The vast majority of bank lending (70 per cent) goes to households, in the form of mortgages.

This breakdown lends support to the proposition there exists a structural problem with SME lending in the UK: our retail banks are comfortable channelling money to people to gear up to buy homes which are rising in value, but that they are much less comfortable when it comes to lending to small businesses that want debt finance to expand.