New Bank of England figures show a sharp decline in bank lending to UK businesses as the government comes under fire over the progress of the bank referral scheme.

According to the Bank of England, business lending fell by £5.5 billion in June, the largest decline on record since data collecting began in 2011. Lending to SMEs was flat on a month-by-month basis. Commenting on the figures in the FT, Lloyds’ head of midmarket commercial banking pointed towards an increase in the popularity of invoice finance.

The stasis in SME lending by banks is notable, as it comes despite the launch of major small business lending funds by big high-street banks such as HSBC and Lloyds. Equally as notable is the mention of invoice finance and business owners’ increasing willingness to use this product instead of traditional banking services.

However, it would be misleading to suggest that businesses are turning en masse to alternative finance services provided by traditional lenders. The government and the British Business Bank have been heavily criticised for the slow roll-out of the bank referral scheme that has been designed to force banks to recommend alternative finance services to businesses that do not meet their lending criteria. Heralded as a game changer for SME finance, a year after its announcement, SMEs can point to next to no progress.

It is clear why the alternative finance sector has become so important to the SME sector and the prospects of the wider economy, and why it is just as vital that more effort is made to raise awareness among small business owners of the likes of invoice finance, peer-to-peer lending and crowdfunding.

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