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THELEXCOLUWednesday July 14 2010
Small business lending
Before the election, politicians
slammed banks for not doing enough
to boost small business lending and
so support the economic recovery.
Twe surveys this week suggest that
lending to small and medium-sized
businesses has not improved much
this year and that bank borrowing
remains difficult. The Institute of
Directors maintains that one
company in three applying for loans
in the first half was turned down.
Meanwhile, British Bankers'
Association data show lending was
broadly flat in April.
Yet, try as they might, banks are
struggling to lend more as borrowers
repay debt - or are not creditworthy
in the first place. A large chunk of
overall finance to companies has
simply disappeared. Take the 74p in
every pound of business lending that
Stephen Hester. Royal Bank of
Scotland chief executive. says went
into commercial property in the final
years of the credit boom.
Nor are UK banks slacking. Part
state-owned Lloyds Banking Group
approves 80 per cent of applications
from small and medium-sized
businesses; up to March, more than
a third of its net business lending
was to small companies. RBS's small
business loan approval rate is 85 per
cent. Nor should the cost of
borrowing be an obstacle: lower
interest rates mean that companies
are paying a lower all-in cost.
But compelling banks with high
impairments and capital costs to
lend more without compromising
creditworthiness criteria is folly.
Encouragingly, the coalition
government's rhetoric has softened
since the election; it is now open to
non-bank financing alternatives.
With appropriate tax breaks or
government risk-sharing, alternative
sources of risk capital, such as life
assurers, private equity and venture
capital, might be prepared to pool
resources in an enterprise finance
vehicle. Banks might be tempted too.
It's worth a try.