The Bank’s figures highlight the nightmare facing Britain’s SMEs which urgently need money to survive or expand.
The Bank of England report said that lending to small companies has been declining for almost three years
Since October 2009, lending to small firms has dropped every single month, compared with the same month in the previous year.
The latest figures show it was 3.9 per cent lower in February compared with last year, when it was also lower than in February 2010.
To make matters worse, the interest rate being charged by the banks has jumped to the highest level since the Bank cut the base rate to an historic low of 0.5 per cent in March 2009.
At present, the smallest businesses in Britain are being charged an average interest rate of 4.83 per cent – nearly ten times the base rate.
Lord Oakeshott, a leading Liberal Democrat peer, said: ‘These small business lending figures are simply horrific.
‘The banks keep charging more and lending less to [small firms].
‘Why can’t the Treasury see that the economy and jobs can’t motor while they let the banks keep siphoning the petrol out of small businesses’ tanks?’
The report comes just days after MPs warned small firms are facing ‘serious and often insurmountable problems’ in getting money from banks at a ‘reasonable’ rate.
The report, from the Treasury Committee, also raised doubts about the Government’s latest attempt to send a financial lifeline to small firms.
MPs said they were concerned that the National Loan Guarantee Scheme ‘was not designed to solve the problem that many small firms, who may be reasonable credit risks, are unable to access bank funding at all in the current market conditions’.
The scheme involves the Government guaranteeing up to £20billion of cheaper loans to small firms.
The money, which will be handed out by banks such as Barclays, Santander and Royal Bank of Scotland, will be offered at a lower rate than businesses could normally obtain.
The Government’s previous scheme, Project Merlin, also failed after banks promised to hand out a gross target of £76billion to small firms but fell short by more than £1billion.
John Walker, national chairman of the Federation of Small Businesses, said: ‘It is clear that more still needs to be done.’