Banks under pressure to lend

Posted on 27 Jul 2010 by The Manufacturer

Vince Cable yesterday launched a consultation green paper alongside the Treasury to try and find ways to encourage bank lending to businesses.

The British Bankers Association recently reported that the latest figures show bank lending to small businesses is flat thus year and, as a monthly average, lower than last year. Trade organistaions including the Forum for Private Businesses and the Institute of Directors say their members are reporting difficulties when dealing with banks over borrowing.

Launching the Financing a Private Sector Economy report, the Business Secretary accused the high street banks of “not acting in the national interest” by choking finance lines.

“If we don’t anticipate and tackle finance barriers now we could face a big problem in the future. Left unchallenged, a lack of accessible finance for businesses could prevent the recovery accelerating,” he said.

“I’ve heard the problems businesses are facing in getting bank loans up and down the country. They need innovative ways to access finance from other sources to grow our firms and economy. That’s why this green paper is so important as we look to help viable firms get the money they need.”

The greenpaper suggests a range of action that could be taken to oil the machine. This includes increasing competition to drive down rates, enticing venture capitalists to invest more in private businesses, setting up regional stock exchanges, and making more government guarantees available.

Cable warned that non-nationalised banks may be subjected to similar targets to the part-nationalised ones and intonated that if targets are not met, executive bonuses could be vetoed.

Chancellor of the Exchequer George Osborne said
“Accessing finance continues to be a challenge for many British businesses,” added Chancellor George Osborne.

“As the economy recovers, it is crucial to ensure that the supply of finance supports rather than constrains demand and business confidence. If businesses are to play their part in promoting economic recovery it is important that they are able to access a diverse range of finance choices in a stable macroeconomic environment.”

The report also ventures that businesses may have to look at other ways than conventional loans or overdrafts to finance growth.

This was a point made In a NatWest Business Knowledge webinar earlier this month by Royal Bank of Scotland’s chairman of small businesses. He said the bank has money to lend but businesses have to be more savvy about how they apply for it.

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