BRITAIN is becoming bouncy and, in places, bubbly. A pumped-up housing market and cheap mortgages have sent households on a shopping spree; many are raiding savings and taking on new credit-card debt. George Osborne, the chancellor of the exchequer, was set to deliver an unusually perky autumn statement as The Economist went to press. But a big problem persists. Six years on from the financial crisis, British firms are still struggling to raise money. That could slow the economic recovery, or even wreck it. Considering the huge scale of British finance, lending to firms is modest. Excluding the loans that banks make to each other, total business lending was around £450 billion ($720 billion) in October, according to the Bank of England. It is a just a third of the £1.4 trillion - in mortgages, personal loans and credit cards - that Britons owe, and less than a tenth of British banks" £7 trillion balance-sheets. Unfortunately, it continues to shrink. Business lending started to contract in 2009 and has continued to do so - on an annual basis - ever since (see chart 1). Over the past five years it has fallen by more than a fifth. Add in price inflation over that period and the buying power of British firms" credit has shrunk by almost 40%. This means entrepreneurs find it harder to set up shop and established firms struggle to grow. Efficient firms are prevented from taking over sluggish ones. And growth is retarded. A 2012 study of 45 countries by Thorsten Beck of Tilburg University found that higher lending to firms is associated with higher growth. Higher lending to people is not. Some of the drop is caused by a reduction in demand. Around 35% of lending goes to firms that build offices, out-of-town shopping malls and other commercial real estate. This sector has retrenched. Commercial property prices dropped by over 40% between 2007 and 2009, according to the Royal Institution of Chartered Surveyors, and have hardly recovered. The fact that this large sector is paying off its debts rather than taking on more explains some of the fall. Other firms that do need money are finding ways around banks. Some opt for "internal" finance, investing using the cash that they retain after a profitable year's trading. With banks increasingly keen to grant mortgages, small-business owners have taken to borrowing against the value of their homes. Larger outfits are going directly to investors. Since the start of 2009 British firms have raised £18 billion in new equity and £62 billion in new debt. Blocked supply is a problem nonetheless. New Bank of England data show that manufacturing outfits and the fast-growing services sector have been squeezed at least as much as property firms (see chart 2). The problem lies with the banks, not the firms. Nor are markets filling this gap: the £80 billion of debt and equity raised is close to £30 billion shy of firms" loan repayments. Borrowing by firms that are too small to issue bonds or sell public equity is falling quickest of all. As demand recovers, the credit squeeze becomes more painful. Britain's firms have cut their debt-to-income ratios by 40% since the end of 2008; many are ready to borrow again. Britain's economy continues to pivot from manufacturing to services. Because services firms tend to rely more on loans, more credit will be needed as the economy recovers. Supply constraints could well bite: Mr Beck's research shows that business lending as a share of total credit in the economy is comparatively low in Britain. A country that houses a global banking system has a severe domestic credit shortfall. The Bank of England and the Treasury have tried to loosen the taps through a "funding for lending" scheme, which provides lenders with cheap cash on the proviso they pass it on to households or firms. The effects have been mixed. Funding for lending has certainly helped the mortgage market: borrowing rates fell by over a percentage point after its introduction in late 2012. But borrowing rates for firms have stayed high. Rates for small ones have actually risen by a percentage point since 2009. If rates can be lowered, credit may start flowing to firms, just as it has to people. From January 2014 the central bank and the Treasury will end their subsidy for mortgages but keep it for business lending; this should make banks keener to provide credit to firms. And 2014 will see the launch of the new, government-funded British Business Bank. It will not lend directly, but will use its £1.3 billion-worth of funds to target pinch points in credit supply. It will underwrite business loans to make them less risky; it may buy up parcels of small-business loans that banks have already made. This could cut interest rates and ease credit supply. The idea is to help firms without getting in the way of the private banks. These policies, however carefully contrived, involve more state support for finance and thus put more of taxpayers" money at risk. They are short-term fixes. The only sustainable solution is to encourage the growth of new banks and specialist lenders dedicated to business. For now the country relies on bruised banks that continue to cut the supply of loans. Britain's half-decade-long credit crunch is likely to worsen before it gets better.