Chancellor urges banks to up business lending

2 August 2010

The Chancellor, George Osborne has called on the UK's banks to improve the level of access that smaller firms have to finance.

In a press interview, Mr Osborne said that the government would not tolerate banks "piling the pressure" on those businesses that were in need of credit.

He argued: "Every small and medium-sized company that I have visited in recent weeks has had some problem with their bank - either they have found it difficult to renew their overdraft or they demanded additional collateral, often someone's house.

"The danger is that, particularly next year, when there is a huge amount of refinancing required, that the small and medium-sized businesses suffer from a lack of access to working capital."

Andrew Tyrie, the new chairman of the House of Commons Treasury select committee, added: "I am very concerned that banks are not lending enough to SMEs, and it is not clear to me how Britain can have a prolonged period of rend growth without the normalisation of banks' activity.

"Having said that, the government is not going to succeed at getting more lending just by shouting at banks or threatening them."

Elsewhere, the Forum of Private Business (FSB) seized with alarm on new figures from the British Bankers Association (BBA) which showed small business lending in decline.

The banking trade association's figures indicate that new loans to small firms increased by £75 million between May and June 2010, but year-on-year term lending has decreased by £269 million compared with June 2009.

Average monthly loans have declined by almost half since 2008, when banks lent an average of £991 million to small firms. In 2010, the average monthly loan rate is £564 million.

In addition, overall lending has decreased significantly in 2010 despite small businesses increasing deposits into banks by £2.5 billion over the past four months.

Matthew Goodman, head of policy at the FSB, said: "Our own research shows that both loans and overdrafts have decreased since the start of June - at a time small businesses need more finance in order to expand.

"The need for finance is only going to increase as the economy grows and as small firms, which must be the catalyst for sustained economic recovery, try to meet renewed demand."