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Increasing Pressure on the Banks

Banks are facing rising pressure to increase their lending to small businesses from all sides – Ed Miliband has threatened that the next Labour government will break the banks up, business minister Michael Fallon has said banks which fail to cooperate will be named and shamed, and a top regulator has labelled the industry’s excuses not correct.

Ed Miliband’s warning is perhaps the most serious – he said that bank lending would need to focus on their core function of credit extension if they wanted to remain intact. He stated; “We need real separation, real culture change. Or we will legislate… If you have banks that work for small businesses and get them the loans, then that’s better for the economy and better for them.” If this doesn’t happen, he spoke of “a hard ring fence” that will protect their retail arms against risks in investment banking.

Michael Fallon has written to the five main lenders to warn them that he will name and shame those who fail to use state schemes that aim to boost lending to small businesses. Statistics show that the use of the Government’s enterprise finance guarantee scheme, which reduces banks’ risk on small business loans, has in fact fallen since it started in 2009.

Andrew Bailey, head of prudential regulation at the Financial Services Authority, has rebuffed bank complaints that they are unable to lend due to red tape and regulation – claims he has categorised as incorrect. In fact, regulators have eased rules so that banks can boost lending while letting their capital ratios drop.

With so many high profile figures criticising the current banking conditions for small businesses, hopefully the pressure will soon start to yield results. In the mean time, it’s worth looking to invoice finance to solve some SME funding woes.

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