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Monday
Jul272009

Banks Called To Account For Failing To Help Small Businesses

Chancellor Alistair Darling is calling bank chiefs to account today for appearing to break promises to give credit to small businesses in return for billions in bailouts from taxpayers.

Heads of taxpayer part-owned Lloyds and Royal Bank of Scotland, HSBC and Barclays have been summoned to a summit to give explanations this afternoon to the Chancellor. Mr Darling wants the banks to explain why the cost of borrowing for business appears to be rising when interest rates have fallen to their lowest ever at 0.5% and why the banks are stalling on guarantees to help businesses they made when receiving  £37 billion of taxpayer cash.

He said: “That is why we will be going through with each individual bank asking them why is it, at a time when the cost of borrowing is coming down, it would appear that the cost to small business appears to have gone up?” 

“We’re playing our part, the banks have got to understand that the public will not understand it if they do not play their part to the full.” 

Meanwhile, the government has reviewed the performance of the Enterprise Finance Guarantee Scheme (EFG) for small businesses that seems to show the banks are willing to lend money backed with a government guarantee but not their own cash.

A total of 4,054 businesses have been offered an EFG loan, with an overall value of £400 million. 

The Enterprise Finance Guarantee is a £1 billion loan guarantee scheme delivered through banks and other lenders that will enable an additional £1.3 billion of lending to businesses up to end March 2010. 

EFG provides a 75% government guarantee on individual loans of up to £1million to viable businesses with annual turnover of up to £25 million. 

The overall worry is that banks are hurting the chances of businesses pulling out of recession by throttling cash flow and investment. Instead of putting funds in to the economy, the banks are using taxpayer funds to bolster their balance sheets and protect their assets.

The result is pain for small businesses that have good order books and are managing the recession but are facing pressure from the banks to reduce or pay more for life-saving small overdrafts that is making continued trading difficult.

 



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