Increase In Amount Of New Business Loans
Since the government bailed out several of the UK’s major high street banks with Treasury loans, they have been placing increasing pressure on lenders to increase the amount and number of loans they approve to small businesses, in an attempt to help these businesses and provide an earlier recovery for the UK economy.
The latest figures from the British Banking Association (BBA) have revealed that new business loans to small and medium sized companies increased by £391 million through the month of June this year and that somewhere in the region of 50,000 new banking relationships were set up.
However, the Chancellor of the Exchequer, Alistair Darling, has said that banks are still not doing enough to help small businesses move forward and that the cost of small business loans is still too high along with a lack of supply of new loans to help fund business projects. Representatives from the BBA are to meet with the Chancellor today (Tuesday) in order to establish what else can be done to reduce the cost and increase the supply of business loans, but it seems likely that the BBA will be defending its corner and placing the blame back with the Government.
David Dooks of the BBA said “Banks lend when and where borrowers are likely to be able to repay their debts. Commercial customers have to demonstrate loans can be repaid and banks will only be able to lend where businesses have enough paying customers coming through the door to finance repayments.
The cost of borrowing reflects more than the Bank of England base rate. Bank costs have gone up and there is less left to lend. Banks are paying relatively more for their money as a result of both competition for savings and scarce and expensive wholesale funding. The cost of funds the authorities made available through the credit guarantee scheme is also expensive at a time when returns on loans, arising from the very low interest rate environment, are lower.”
