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Banks criticise business lending plans

Date Added: 05/10/2011  

Chancellor George Osborne has revealed his plan to boost small businesses in his speech at the Conservative Party Conference in Manchester this week.

He has dubbed the proposals credit easing, which involves the public sector buying bonds issued by companies, in the hope this would reduce the cost of borrowing for firms.

According to a report by BBC News, the result of this would be that banks parcel up their loans to small businesses in these bonds, cutting their risk and improving the flow of finance to companies such as those in danger of being served with a winding up order.

But the British Bankers' Association (BBA) stated that the chancellor has to address the lack of demand for business lending, rather than focusing on easing the flow of credit.

"The key factor governing demand for finance is not any lack of available credit from banks, but a growing lack of confidence in economic recovery," a BBA spokesman was quoted as saying by the Daily Telegraph.

Phil Orford, chief executive of the Forum of Private Business, added that the recent release of figures from the BBA showing firms owe £10 billion less on their overdraft facilities than two years ago shows the lack of demand is there.

Mr Osborne's plan received the backing of Sam Gwimah MP, who wrote in the Spectator that the idea needs to be fleshed out by the chancellor and the rest of the Treasury.

"Bashing the banks and urging to lend more, as we have done since 2008, has failed to solve the problem," he pointed out, also noting there is a need to overhaul the entire business lending landscape, as it is not working for either banks or small companies at the moment.

The MP added that the coalition government is going to have to ensure only creditworthy businesses are able to benefit from the bonds.

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Posted by Julie Cutts

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