Government package leaves banks without lending excuses

Alistair Darling

Banks have been left with no excuses not to lend to small firms, after a second finance package was announced by the Government, according to the Federation of Small Businesses (FSB).

The FSB said that the initiatives, which include Government insurance for banks against expected bad debts, should help to free up more cash to lend to businesses.

Alistair Darling

Earlier this year, the Government announced a plan to guarantee up to £20 billion of loans to small and medium–sized firms to help them survive the economic downturn. FSB head of parliamentary affairs Stephen Alambritis said:

“The last package gave specific amounts of money for small businesses to access. This week’s package will make banks more comfortable with their own viability so they can release funds and give more money to small firms.

Alambritis explained that under the insurance plans, banks will agree with the Government the amount they expect to lose from a particular bad business debt, and HM Treasury will insure them against 90% of that risk.

“The Government has moved further to safeguard the position of the banks. The impact for small businesses is that if the banks are capitalised, and reassured that the bad debt is taken away from them, they are more likely to lend money to entrepreneurs who want to start a business.”

Commenting on the Government’s steps to encourage bank lending, HM Chancellor Alistair Darling said:

“We needed a range of measures designed to support lending, help businesses and protect jobs.”

“The banks’ problems stem from uncertainty about the value of their assets — faced with this uncertainty, individual banks are reluctant to lend to businesses. My measures remove uncertainty and accelerate a resumption of lending — a necessary precondition for recovery here and around the world.” he added.

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