Businesses losing confidence in banks

Faced with sluggish economic growth and public sector spending cuts, many businesses are in desperate need of financial support.

However, a new survey by the insolvency trade body R3 has shown that the majority of companies have lost their faith in banks to offer backing.

Only 32 per cent of firms believe banks are being supportive at the moment, compared to 43 per cent three months ago.

The findings come as bankers are warning that billions of pounds worth of lending to businesses could be at risk from plans to tighten regulations.

In its final report, the government's Independent Commission on Banking called for the separation of retail and commercial banking.

However, the British Bankers' Association has warned that this could hamper the ability of financial institutions to lend to businesses.

Frances Coulson, president of R3, said a growing number of businesses are finding it hard to acquire new lines of credit at the moment.

"As we have seen in previous recessions, once the economy begins to show signs of recovery, creditors tend to make a more concerted effort to pursue those who are indebted to them and tighten up their lending facilities."

He added: "We are still in the early stages of recovery and it takes time for this to translate into tangible relief for businesses.

"For the businesses that used all of their reserves to survive the recession, supportive creditors are more important than ever."

Indeed, a helpful bank willing to provide lending at favourable rates could make a world of difference to a company threatened with a winding up order.

The survey also showed that confidence in trade creditors has also slipped, with 23 per cent of businesses now seeing them as supportive, compared to 43 per cent three months ago.