Midland business leaders say firms have a “growing reluctance” to deal with banks after a sharp lending fall.
Latest Bank of England figures showed a fall of £5.5 billion in outstanding lending to non-financial businesses in June, the biggest drop since the it began collecting the data in 2011.
The fall came after with an average monthly increase of £200 million in the proceeding six months.
It also contrasts with a new report claiming bank lending to businesses is set to grow in 2015 for the first time in seven years.
Despite that, Johnathan Dudley, chair of the Alliance for the Black Country, said: “Clearly there is a growth in confidence in business and a willingness to do deals but after the problems of a few years ago there appears to be a reluctance of business to borrow from banks who businesses perceive require too much in return.
“Although this gap has been partly filled by challenger lenders and alternative finance sources, the growing reluctance to engage with banks will continue to stifle investment and growth.
“Government schemes such as Funding for lending and Enterprise Finance Guarantee clearly haven’t worked and they need overhauling and replacing. In addition, there needs to be a restoration of trust between the banks and businesses.”
Mr Dudley, managing partner at Crowe Clark Whitehill, said he planned to raise the issue with the Secretary of State for Business Innovation and Skills.
He wants the Government to support an investment readiness programme for SMEs to increase business lending.
The fall in lending recorded in June came after an increase of £818 million in May.
Howard Archer, chief UK and European economist at IHS Global Insight, said: “It is vitally important for the UK’s ability to generate sustained balanced growth and to lift productivity that all companies who are in decent shape and who do want to borrow – whether it be to invest to add or upgrade capacity, improve production processes, explore new markets or generally support their operations – can do so.”
The Bank figures contrast sharply to an upbeat forecast from the EY ITEM Club.
The report claims growth this year will be marginal at just 0.25% compared to last year, but the figure is expected to continue rising over the next four years up to 25% higher than 2014 levels.
Lending in the second half of this year needs to be just three higher than in the same period a year ago for business lending figures to grow overall this year, it added.
Omar Ali, EY UK head of banking and capital markets, said June’s figures were down to large corporations paying debt.
But the report added that due to the recovering UK economy “June’s figures don’t dash hopes that business lending will rise overall in 2015”.
Mr Ali added: “Consumer credit finally turned the corner in 2014, and now business lending will hopefully follow suit.
“The rising demand from businesses for new loans is good news for the banks, but the June drop in net lending shows how vulnerable they are to bigger businesses, with access to alternative sources of finance such as bonds, paying off overdrafts in preparation for rising interest rates.”
The survey said mortgage lending is forecast to rise modestly over the next four years, at an annual average rate of 3.8 per cent.
This is broadly in line with growth in household incomes and will be boosted by rising house prices and continued low interest rates.