The government has proposed new measures to force UK banks to lend to small companies.
UK SMEs face a "very serious problem" when it comes to securing finance, said business secretary Vince Cable as he put forward proposals including a new tax on profits for banks which refuse to lend money to viable businesses.
Launching a new Green Paper from the Department for Business, Innovation and Skills in consultation with the Treasury, Cable claimed that £50bn of new funds for small and medium sized companies could be freed up by slashing payouts to bank staff and shareholders.
As well as considering taxing the profits of banks which fail to support businesses, ministers are also looking into regional stock exchanges, encouraging venture capitalists and business angels to invest in a wider range of businesses and the extension of the Enterprise Loan Guarantee scheme introduced by the Labour government.
The British Bankers Association says its members are meeting 80% of requests for finance from company owners but Cable and business lobby groups claim many viable ventures are still struggling to secure credit.
"I've heard the problems businesses are facing in getting bank loans up and down the country. They need innovative ways to access finance from other sources to grow our firms and economy. That's why this green paper is so important as we look to help viable firms get the money they need."
“Green Papers are unlikely to improve the situation – it is the economic environment that will encourage banks to lend," commented David Ingall, a partner at JWPCreers.
“One idea that might improve the position is for all banks to have a fund for risk lending to small businesses. This would be a relatively small amount (£20 million - £50 million per bank) where the normal strict rules would not be applied and where each individual loan would be restricted to £5,000 to £10,000. It is these small amounts that can be very frustrating. The fees and interest charged would have to be restricted to reasonable levels.
“The point is that even in the very unlikely event of nothing being repaid on any of the loans, the banks would not be exposed to unreasonable losses and very probably there would be some very happy and successful small businesses".
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Dan Martin has eight years experience as a journalist writing about entrepreneurs and the issues that affect them. After three years working as a researcher for Sky News, he joined BusinessEurope.com as a reporter. This was followed by two years working as news editor for Startups.co.uk during which time Dan also contributed to Growing Business...