Banks to investigate small business lending

16 July 2010

It has been proposed that UK banks will carry out a study of the levels of lending to smaller firms in an effort to improve business credit.

The proposal was one of several raised during a meeting between banking representatives and the Chancellor, George Osborne, and Business Secretary, Vince Cable.

Much concern has been expressed over what appears to be a sharp decline in business lending despite signs that the economy is moving back into growth.

Data suggest that business loans are being repaid at a faster rate than new loan agreements are being reached between the banks and SMEs.

The government is keen to see a boost to business lending as it wants private sector growth to offset the large numbers of public sector jobs that are expected to go over the coming years.

Although the previous government had set the bailed-out banks - Lloyds and RBS - with lending targets, the coalition has stipulated that those targets should be based on net figures, which take loan repayments into account along with new loans, rather than gross figures.

The government is preparing a green paper on business finance which may also include details of plans to help businesses through equity investment as well as bank loans.

In a joint statement following the meeting, Mr Osborne and Mr Cable said: "We met the CEOs of the UK's biggest banks as part of ongoing discussions on regulatory reform, and the availability of credit. It was a very constructive meeting that will help inform the government's green paper on business finance which will be published shortly."