LONDON (Reuters) - Demand for finance from small businesses in Britain remains subdued with applications for loans toward the end of 2009 still down sharply from their 2008 high, Business Secretary Peter Mandelson said on Thursday.
Policymakers at the Bank of England and within government worry that Britain"s fragile economic recovery will not gain traction without higher flows of credit within the system.
"Data supplied to my department by the four main lenders to small and medium-sized enterprises (SMEs) show ... the number of applications in the final quarter of 2009 some 25 percent down on the early 2008 high," Mandelson said, answering questions in the House of Lords, the upper chamber of parliament.
"However the value of loans drawn in the final quarter of 2009 was over 7 percent up on the previous quarter and the majority of businesses applying for support continue to access finance they require," he said.
A spokeswoman for Mandelson"s Department for Business, Innovation and Skills said the four main lenders to SMEs were Lloyds Banking Group (LLOY.L), Barclays (BARC.L), HSBC (HSBA.L) and Royal Bank of Scotland (RBS.L).
"The principal problem that we have in the economy is a lack of demand for lending rather than a lack of supply," Mandelson said.
"It may well be, as the recovery gathers strength during the course of this year and next, that the demand problem might become more of a supply problem and that"s why we have to be very vigilant about the approach and practices and behavior of the banks in relation to the corporate sector," he said.
He said loans totaling more than 690 million pounds ($1.06 billion) had been drawn down by nearly 7,000 businesses under the government"s Enterprise Finance Guarantee.
The Enterprise Finance Guarantee, a loan guarantee scheme, was launched in January 2009 to help SMEs obtain working capital and investment in the depths of the credit crunch.
Mandelson said surveys by his department showed around three-quarters of businesses got finance from the first source they approached, though he accepted that the general perception of bank lending among small businesses was more negative than the figures suggested.
"The data indicates current approval rates for loans and overdrafts are around 66 percent for businesses with turnover of up to 1 million pounds and close to 90 percent for 1-to-25 million pound turnover businesses," he said.
He urged banks "to be both more communicative and also more competitive in their approach to lending to SMEs."
(Reporting by Adrian Croft; Editing by)
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