The major UK banks and the BBA have established a Taskforce to identify, analyse and review ways the banking system can, over the next 3 years, help viable UK business of all size access appropriate finance and other support. The Taskforce will set in train a number of work streams and aims to report by mid October in time for the Chancellor’s autumn statement.

High street banks already provide the bulk of lending to UK businesses – their current lending stands at a total of £720bn to all UK businesses. This is despite being required to keep back more cash and capital and having to plug the lending gap left as overseas and specialist lenders largely stopped operating in the UK.

Banks are willing and able to lend to businesses where they can see how the money will be paid back and where firms have a viable business plan. Indeed banks lent a net £6.8 billion in June to businesses and, despite the recession, lending to smaller firms is stable and borrowing by larger firms has shown some improvement.

Angela Knight, chief executive of the British Bankers’ Association said:

Banks already provide the vast bulk of business funding in the UK. But how much they can lend depends on many factors including new rules dictating how much cash and capital has to set aside before banks can even consider lending to customers.

Banks are happy to lend to firms where their business plan is robust and BIS has acknowledged in today’s green paper that conditions have improved and that the majority of businesses can raise the finance they need. But lending to SMEs is not risk free. Businesses need to show they have enough coming in from the goods and services they provide to repay any borrowing. It is in no one’s interests to lend where customers would struggle to repay the loan and get into difficulties.

“The greatest help there can be for business is to restart the securitisation market and get wholesale markets moving so there is a steady stream of new funds which banks can convert into loans to business.

Today’s consultation on lending to small and medium sized enterprises reconsiders some old solutions to lending as well as considering some new ideas. The banking industry is currently setting up a number of groups to work though the government’s plans as well as to make our own positive proposals to helping finance small businesses.

UK banks have already agreed with government the following principles for dealing with SMEs.

Banks will:

• Welcome the support of the SME’s own professional advisers and are happy to work with them [acknowledging shadow directorship boundaries in the provision of advice];
• Set out the factors that determine how much the loan will cost using either in house guides or industry-standard literature;
• Inform customers how long it will take for a lending decision to be taken, starting from the point when a full suite of information is provided to complete an application;
• Ensure they have fair and effective processes in place to review decisions to decline a lending request;
• Provide proactive and clear feedback wherever possible when a decision has been taken to decline a borrowing request and will suggest possible next steps businesses might take [for example contacting Business Link for further advice and support]; and
• Promote both these initiatives and the Lending Code itself. with SME representatives and with the Lending Code Standards Board.

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