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Banks must do more to help small businesses get finance

Banks must do more to help small businesses get finance

A new report claims that the UK’s financial sector is not doing enough to support SMEs and this is damaging the economy.

Will Hutton, The Work Foundation’s executive vice chair, has submitted the report to the Independent Banking Commission, and says that despite bank assets growing to four times GDP, lending to corporates represents only 5% of all lending.

The report goes on to say that the lack of support for SMEs has discouraged borrowers from applying for loans. This lack of investment reduces innovation levels, which in turn creates a cycle of less dynamism, less investment and less innovation.

The authors of the report want to see rigorous ring-fencing, or separation, of commercial and retail banking operations from investment banking, as well as additional capital being made available. By doing this, internal frameworks would be changed and the financial sector would find it more attractive to lend to smaller firms.

Furthermore, the banks must stop concentrating on balance sheets and start to look on small businesses as positive investments which will strengthen the economic recovery.

The FSB also agrees that lending to small businesses must improve. The banks say small businesses are not applying for credit and yet a recent survey from the FSB shows that around 960,000 of its members asked the banks for a loan in the past 12 months and a third were refused. 16% of those refused were not told why their application was turned down.

34% of those who applied needed the funding to cover cash-flow, but 21% wanted finance to buy new machinery and equipment and a further 17% wanted to expand their business.

John Walker, the FSB’s national chairman, pointed out that the OBR forecasts that business investment will help to drive the recovery but this cannot happen until banks work with companies to make sure they get much needed finance.

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Empty Seats by joncandy

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