According to the Forum of Private Business (FPB), bank lending needs to be made more accessible and affordable following a report which identified a ‘permanent gap’ in small business finance.

In it’s submission to the Rowlands Growth Capital Review, the FPB highlighted a major shortfall in growth capital for businesses seeking between £2-10m and the forum has called for a range of finance options to be made available for more small firms, including those requiring significantly less capital. .

Following the review, the Government announced plans to introduce a new growth capital fund to plug the gap and a £1bn innovation fund for technology start-ups. Despite this, the FPB believes that the banks must also play their part by increasing the availability of lending, particularly for investments between £100,000 and £500,000, which is the level typically required by most small businesses. It also argued that the steep cost of bank finance must be reduced.

Some 77% of respondents stated that the terms and conditions of lending, including demands for personal guarantees had deteriorated during 2009. Only 4% of FPB members said they have seen access to working capital improve in 2009, while 58% said it has worsened. Around 65% said it was now harder to access finance for growth and 68% reported that the cost of finance had increased.

Matt Goodman, the FPB’s policy representative, said: “There are still small businesses unable to access the finance they need but affordability is now the key issue, the growth capital and hi-tech start-up funds announced by the Government will be significant steps forward, but the steep cost of traditional bank lending remains a huge barrier for many viable yet struggling firms.”

In all, 47% of respondents to the FPB’s quarterly referendum survey said they expected an increase in trade in the next 12 months, with 13% already experiencing an upturn in orders with 45% intending to expand their businesses and 37% looking to recruit additional staff by September 2010.

Goodman said: “We are entering a key period - firms are likely to require finance from a greater range of sources over the next year. Growth funding is certainly welcome but must be accompanied by more sustainable banking lending and public sector support – including a replacement for the Enterprise Finance Guarantee (EFG) - so that they are able to take full advantage of future opportunities.”