Officials from the Federation of Small Businesses have said that the recovery of the economy in the UK is based heavily on lending from banks, but that banks are refusing to provide finance to many businesses even in cases where the business has a sound business and financial plan in place.

Since the onset of the global credit crunch there have been many issues that have affected the financial industry and both consumers and businesses have suffered when it comes to being able to get finance, which further deepened the recent recession.

The global credit crisis left the banking industry practically in ruins, and in order to shore up their finances many banks are reluctant to lend money to businesses and consumers even if there is just the slightest risk. One economist said that banks no longer had the ‘risk appetite’ and this was affecting their decision over who they would lend to.

The Federation of Small Businesses said that a lot of research had been carried out that indicated many businesses had been desperate to borrow money from banks but that in the difficult financial climate the banking industry had been reluctant to hand out business loans.

However, other reports have indicated that it is not only the banks that are to blame. Some have suggested that the appetite for borrowing money amongst businesses has also dropped, and that one of the reasons behind the poor business lending figures by banks was a reduction in the level of applications.

It is thought that some businesses may be steering clear of borrowing money from banks for one of a number of reasons, from fear of falling behind with repayments to high interest rates or simply a growing lack of trust and confidence in the banking sector.