by business editor Trevor Sturgess

Small firms have welcomed a new “funding for lending” boost after dismissing bank claims that lack of demand is holding back loans.

The Federation of Small Businesses in Kent and Medway said the scheme announced by the Chancellor involving the Bank of England injecting a further £80bn into the banking system to ease credit should kick-start lending.

Banks claim that lending has fallen because of lack of demand, and that almost all applications for loans are accepted.

But FSB research found that 40% of small firms applying for credit are turned down. Of some 2,000 that took their banks’ rejection to an independent appeals adjudicator, four in 10 were successful in getting the decision reversed.

Roger House, FSB chairman for Kent and Medway, said: “The FSB welcomes the ‘funding for lending’ scheme and hopes that this will be the kick-start for banks to lend that small businesses need. As with prior small business lending schemes the devil will be in the detail so we await to see exactly how this scheme will result in banks changing their view of credit risk and more small firms’ applications being accepted.”

He added: “We are pleased that the funding will be available in the coming weeks. However there must be a clear reporting process to provide tangible evidence the money is being passed on to small firms and not just shoring up the banks. Overall we need to see decisions coming from the Government which will result in the long term growth of small businesses and a consistent approach to lending from the banks, not just a short-term spike.”

The CBI, the employers’ group, said the move was a sensible one that would provide new liquidity to to banks at a time of Eurozone turbulence in financial markets.