Banks go on charm offensive with £1.5bn growth fund

Banks have finally admitted that they need to do more to help SMEs. But that could be easier said than done.

by Emma Haslett
Last Updated: 15 Nov 2010
After much vociferous complaining from small businesses, banks have finally fessed up to the fact that they probably could be more active in their support of SMEs. The Business Finance Taskforce, a group of six banks (including all the usual suspects – RBS, Lloyds, Santander et al) admitted as much in a report released last night, making 17 pledges to help businesses recover. Among them were a £1.5bn growth fund, an appeals process for customers whose loan applications have been turned down (for which business groups have been arguing for ages), and a round-table bringing bankers and business leaders together. But with the cost of borrowing still stubbornly high, delivering on these good intentions might not be straightforward...

The banks claim that lending has actually remained fairly stable throughout the recession, with loan approval rates of around 85% - although they do admit that for smaller businesses, the rate dropped to about 75% (which still feels considerably higher than anecdotal evidence suggests). And while they acknowledge that there has been a ‘squeeze’ on the supply of credit to businesses, they insist that the main reason approvals are lower than usual is not because they’re refusing to lend – but because small businesses are unwilling to take on any new debt.

That might be partially true – but with banks still charging high rates on loans, they can't really blame the borrowers. And these interest rates look unlikely to fall any time soon: it will be some time before the banks have the same ready access to cheap money that they had before the crash, and that will inevitably affect the cost of loans. So even when this £1.5bn does become available - and it won't be for a while yet - we'll have to wait and see how many small firms apply.

The bigger picture, of course, is that this report is all part of a concerted effort by the banks to show the Government that they’re fully committed to lending; they're jumping before they're pushed. And some of it makes sense: the CBI, for example, has particularly welcomed the pledge to create a ‘network of mentors’ who will be available to businesses free of charge. But Chancellor George Osborne and business secretary Vince Cable are playing it cool; although they welcomed the report, they said it was no more than an 'important first step’.

The trouble is, they're unlikely to placate the Government unless more money starts flowing to businesses. And for all sorts of reasons - not all of which are the banks' fault - that doesn't really seem to be happening yet. 'Less talk, more action' is surely the order of the day now. Oh, and trying not to undo all this good work by shelling out massive fat bonuses in the new year…

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