Lord Oakeshott, the former Liberal Democrat Treasury spokesman has accused the UK banks of hindering the economic recovery by refusing finance to small enterprises and charging extravagant rates when they do.
Official data from the Bank of England shows there are huge discrepancies between the interest rates paid by large firms and their smaller counterparts. An SME is charged an average interest rate of 3.69% on a £1 million loan, but a large organisation borrowing in excess of £20 million, pays only 1.78%.
Lord Oakeshott says this approach is making a mockery of attempts to solve the lending crisis. This data is gruesome proof that the banks are choking the UK’s economic recovery. The coalition must put pressure on the banks immediately if it wants to prevent small firms seizing up.
The BBA reported recently that net lending to companies dropped by £4.7 billion in March after a drop of £4.6 billion the month previously.
The Central European Banks have also reported that despite a slight improvement recently, businesses still struggle to obtain finance. This news led the chairman of Success Strategy, John de Groot, to advise British entrepreneurs to think about different ways of getting finance including approaching family and friends.
He explained that banks look at a wide variety of factors when a business applies for a loan. These include the applicant’s credit rating, motivation, viability of a proposal and the amount of money the entrepreneur will contribute to fund that proposal. If smaller firms cannot satisfy these requirements, borrowing from friends and family could prove to be a better alternative.
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Image: No Money § by Alina Sofia
