Bank Lending Still Too Low

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With their recent investments and profit reports, UK banks appear to be recovering quite well and once again beginning to live large. However, entrepreneurs in search of funding for starting a business should not expect to necessarily see a piece of that pie. Never mind that some of these institutions are now at least partially owned by the British public, after being bailed out with our hard-earned money; banks are still not holding up what many believe should be their end of the bargain. And, it is not just a few business owners who think the banking sector needs to step up and start lending more; Chancellor, George Osborne and Business Secretary, Vince Cable have both spoken out quite clearly on the need for banks to fulfil their obligation to increase lending, such as providing funding for starting a business.

At the same time, big banks are making their own statements, defending their current lending stance by professing their commitment to the continued support of established companies and the provision of funding for starting a business. Some, such as Eric Daniels of Lloyds Banking Group, have gone as far as to say that low bank lending rates are more about businesses not wanting to borrow and increase their debt, than about the banks telling them no.

Of course, if those looking for funding for starting a business were asked for their take on Mr Daniels’ claim, we would likely hear quite a different story. In fact, the Chancellor was not shy about pointing out that he had visited several SMEs over the past few weeks and that all had reported having some kind of difficulty with their banking institution. In particular, these businesses reported difficulties in attempting to renew overdrafts and banks demanding more collateral.

That hardly sounds like banks are trying to give away money, while established firms and those in search of funding for starting a business are turning up their noses. It seems much more likely that the banking sector is ignoring its obligation to assist in economic recovery and help to ensure that viable businesses and ambitious entrepreneurs seeking funding for starting a business have access to the money they need to establish or expand on their endeavours.

Now that major banks are once again showing profits, the bank bosses are the only people who seem to think their institutions are meeting their lending obligations. And, to see just how much some of these banks have turned around, here are some examples of the profits reported for the six months to June:

• Lloyds Banking Group reports a pre-tax profit of £1.6bn (Let’s not forget they are now 41% taxpayer owned.)
• HSBC reports a profit of £7bn
• Societe Generale reports a profit of £900m
• Northern Rock reports profits of £350m

Improvement in the economic status of banks is a necessity as the economy continues down the road to recovery. However, that improvement means less and makes less of a difference in the economic climate when banks are holding back funding from small businesses and are requiring ridiculous amounts of collateral when they actually do provide funding for starting a business.

Business Angels have become even more important to small businesses and entrepreneurs seeking funding for starting a business in the current lending climate. While the banking sector might be continuing its well-established trend of failing small business, the private equity finance sector is alive and well, and only getting stronger. As long as there are brilliant, ambitious entrepreneurs in search of funding for starting a business and generous, experienced business Angels to step up to the plate and provide that funding, SMEs will continue to thrive.

Image © Leo Blanchette