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Banks must lend to small businesses’ urges government

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In the latest round of pressure against banks’ stringent lending policies, the Business Secretary Vince Cable has instructed banks to increase funding to hard-pressed firms.

Accusing the nation’s leading banks of “not acting in the national interest”, Mr Cable declared a joint consultation paper will examine the best options for improving business lending.

Under potential proposals, banks could be made to sign up to the same type of lending agreements placed on the part-nationalised RBS and Lloyds. Those who refuse to increase lending could face penalties on executive bonuses, as the government desperately tries to kick start the nation’s economy.

“At the moment we are talking to them (banks) in an amicable way and we are monitoring them, but if this doesn’t work there are combinations of carrots and sticks that can be employed and they are under no illusions about that – and we are not either,” Mr Cable told the Sunday Times.

“What we would question is whether banks should be paying out dividends and bonuses when that money could be used to… support small business lending.”

In response, banks have claimed that lending is slowly increasing to smaller firms while larger companies are welcoming increased finance. In June, a net £6.8 billion was lent to businesses, but many firms are apparently afraid to undertake loans during the current economic climate.

“Demand for lending is currently low as businesses are not keen to take on additional borrowing when the economic outcome is uncertain,” said a spokesperson for the British Bankers’ Association. “Banks are willing and able to lend to businesses where they can see how the money will be paid back and where firms have a viable business plan.”


Written by Andrew Hodges

July 31, 2010 at 9:35 pm

Posted in Comment, LinkedIn

Tagged with , ,

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