More “human” Approach to Business Lending Needed

Barclays Bank is right to fight Government-imposed lending targets for small firms, say business groups – but they want competition among banks and a more “human” approach to lending.

Speaking to the Financial Times, the head of Barclays’ small-business unit, Steve Cooper, argued that imposing lending targets would create a culture of making weak loans simply to meet targets.

Cooper was speaking in response to news that the Government is exploring the option of introducing targets to all banks, not just the part-nationalised banks in which it owns a stake.

But small-business groups are united with banks in opposing the suggestion.

“We agree with Barclays that they are best placed to decide who to loan to,”

said Forum of Private Business (FPB) spokesman Chris Gorman.

“We value Government pressure but not targets, which are an intrusion into the market. But the banks do need to appreciate how crucial small business lending is to the economic recovery and to be sincere in their claim to want to lend to small firms.”

A Federation of Small Businesses (FSB) spokesperson said:

“We’d prefer to see the banks taking each case as it comes and taking a bit more of a risk to help businesses, particularly start-ups. We’d like to see a more human approach to lending and more competition in the banking sector, rather than more targets.”

Figures from the British Bankers’ Association (BBA) show that lending to small businesses increased by £70 million from May to June 2010, to £598 million. However, this is still lower than June 2009, when SMEs received loans totalling £867 million.

A BBA spokesman claimed that around 85% of lending requests were being met by banks, but there was currently less demand for loans. The BBA figures conflict with FPB research, however, which suggests that the loan success rate in the six months to January 2010 was just 48%.

The FPB partially blamed low demand and the low success rate of lending applications on the banks undervaluing commercial property, meaning many potential borrowers are not able to supply security for their loan. It is encouraging businesses to get their own property valuations and challenge the banks’ valuations with their own.

“We think removing the secrecy and lack of information around property values will help small firms contest the banks’ property valuations,”

said Gorman.

The FSB said punitive financial reviews by banks were putting many businesses off making loan applications. It is calling for greater competition in the banking sector to create better conditions for businesses. Among other things, the FSB would like to see the Post Office network offering banking services. The BBA has set up a bank lending ‘taskforce’ to look into the issue of small business lending.

More “human” Approach to Business Lending Needed

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