James Moore: Why lenders are not turning on the taps for businesses

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The Independent Online

HSBC might be a global mega-bank but even it's not immune from the pressure to lend to businesses.

The bank's PR people hurriedly sent an email out yesterday morning in an attempt to show that it's doing its bit. "We helped 65,000 new businesses start up during the last six months – 2,300 a week," it gushed.

What it didn't say is that the net lending figure is falling – HSBC's overall loan book to businesses continues to shrink.

To be fair, it's not just HSBC. The other banks will have a tough time showing any increase in net new lending when they report later this week, adding fuel to the fire.

Angela Knight, the head of the British Bankers' Association, offers a robust defence of their policies. "Banks are there to lend, are willing to lend and there is money available for lending, but clearly a business has to first have a viable business plan so that the bank can see that money will be repaid," she says.

The BBA also says – along with HSBC – that appetite among businesses for loans is increasing and banks are meeting this. In June, for example, the BBA says more than 11,000 new loans were provided for a total value of £598m (about £70m more than the average for April/May). So, it's all about demand. The money's there, it's just that businesses don't want it.

That rosy view of the situation is not shared by business groups. The Federation of Small Business says that although its members are indeed repaying loans, when they approach banks they feel the process they have to go through to obtain new money is intrusive and the cost often prohibitive. Banks are preferring to offer loans, with tight strings attached, rather than overdrafts, which businesses often need, particularly as customers tend to take longer to pay during times of economic stress.

One idea floated is to make lending targets imposed on the part-nationalised banks (Lloyds and Royal Bank of Scotland) tougher with, for example, penalties for not meeting them.

Interestingly, however, the Federation fights shy of this. It would instead like to see more competition in the marketplace.

There have been new banks setting up (slowly). Aldemore is one, Metro Bank, which recently launched with a great deal of noise (and scepticism) is another.

But the Federation would like to see more innovative ideas, such as using the Post Office network as a sort of Postbank for businesses. It also likes the idea of regional stock exchanges, which might offer cheaper listing fees and lighter regulation than the main market.

Another idea, floated by Vince Cable, would be to link bankers' beloved bonuses to lending targets. But targets, generally, get short shrift from HSBC, which argues that the last thing you need after a crisis caused by irresponsible lending is targets that could encourage more, well, irresponsible lending.

The other issue facing the banks is that up £200bn needs to be repaid to the Bank of England over the coming months as the Special Liquidity Scheme is unwound.

Don't expect the taps to be turned on for SMEs anytime soon.