Small firms benefit from Bank Bail-out

Bank

Small businesses will have better access to finance from Lloyds TSB, HBOS and Royal Bank of Scotland (RBS), following the Government’s £37 billion bank bail–out.

Bank

The Government investment comes with the condition that the three banks maintain the availability of competitively–priced lending to homeowners and to small businesses. The agreement also includes NatWest, which is owned by RBS.

The terms of the bank capitalisation also require Lloyds TSB, HBOS and RBS to restore small business lending to 2007 levels. The Chancellor, Alistair Darling said:

“There will need to be a strong focus at these recapitalised banks on making lending available for small business and homebuyers. These conditions are set out in the individual agreements with the banks.”

The Federation of Small Businesses’ (FSB) head of public affairs, Stephen Alambritis, said:

“We are pleased to have a commitment from the banks after the small business minister Baroness Vadera asked them to lend money to small business at 2007 levels, which was a very good year for lending to small businesses. A total of £50 billion was borrowed from the four major banks in that year.”

“The banks will still have to carry out credit scoring and look at individual business proposals, but we hope that this money will be enough to tide firms over and sustain them over the next six months,” he added.

According to Peter Jones, panel member for the BBC television programme Dragons’ Den, the recapitalisation of the banks is a huge opportunity for every SME in the UK.

“The banks have made this arrangement so they can open up their credit lines to SMEs,” said Jones. “Today’s the day to get back in contact with your bank and ask for the money you couldn’t get during the past three months.”

According to the British Bankers’ Association (BBA), the Government’s cash injection means the banks will continue to lend to businesses provided they can afford to repay borrowings or have a contingency plan in place. BBA spokesperson Brian Capon said:

“Banks are still going to be offering the same selection of products as before — including overdrafts and loans — to businesses that can afford to repay them,”

“But the focus will increasingly be on how the business itself is running,” he added. “If firms apply for a bank loan or renewal facility, the bank will look very closely at whether the business can afford to repay its borrowing, and at what the firm plans to do if it deteriorates due to the credit crunch — for example if people aren’t buying their services.

“It’s more important now than ever for small businesses to have all this information to hand when they approach their bank, along with a proper business plan and contingency plan,” said Capon.

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