Cable Looks to Boost Small Business Lending
In an attempt to increase lending to small business the Business Secretary, Vince Cable, has been criticial of banking institutions by saying that banks are "…not acting in the national interest. I don’t think they get it."
Mr Cable has suggested that there may need to be a "carrot and stick" approach to bank dividends and bonuses.
In a report released today Financing a Private Sector Recovery, HM Treasury and the Department for Business Innovation and Skills (BIS) put forward the case for "sustainable and secure sources of finance for investment".
Both Vince Cable and The Chancellor of the Exchequer, George Osborne, acknowledge the importance of UK SMEs as the focus for this finance drive by stating that:
“Small and growing businesses are a vital part of the economic recovery”
Speaking to the BBC Mr Cable said:
“If we don’t anticipate and tackle finance barriers now, we could face a big problem in the future.”
“Left unchallenged, a lack of accessible finance for businesses could prevent the recovery accelerating.”
Chancellor George Osborne added:
“As the economy recovers, it is crucial to ensure that the supply of finance supports rather than constrains demand and business confidence.”
The new report includes proposals for a range of finance options such as encouraging venture capital and business angels to increase their investments in addition to the £200 miilion additions to the Enterprise Finance Guarantee Scheme (as seen in the Emergency Budget)
The green paper also proposes increased transparency in banking with an improvement in bank loan applications and increased competition between banks. This could also include penalties on excessive bank bonuses when banks fail to increase lending.
Despite the British Bankers Association maintaining that "High Street banks lent £6.8bn in June." 1 in 3 bank loan applications are still denied and whilst funding is certainly being provided to small businesses these business loans are at higher costs.
“Demand for lending is currently low as businesses are not keen to take on additional borrowing when the economic outcome is uncertain,” the BBA added.
The green paper sets out the Government’s understanding of current economic conditions in the business finance markets but if SMEs are to continue to effectively manage cashflow then lending institutions need to "do better".