Cautious welcome for pub lending plan

The Government's plan to let small firms borrow money from pension funds and insurance companies rather than banks has been met with a cautious welcome.

Chancellor Alistair Darling said that under the scheme, to be unveiled in the autumn pre-Budget report, small businesses would be able to approach City institutions that would be approved for lending by the Government.

"I want to start creating a different financial model in the future, in which small companies get funding from sources other than banks," he wrote in The Observer.

"Our goal is to make finance the servant not the master, of the real economy."

The news comes as the Morning Advertiser campaigns for banks to drop their apparent blanket policies of not lending to the pub and leisure sector.

A Federation of Small Businesses spokeswoman said: "We're in favour of anything that drives down costs and presents businesses with other options for finance."

But she said it was "unclear" when and if such a scheme could be introduced. For example, pension fund shareholders may have to approve decisions to lend, which could create a barrier to offering finance.

Meanwhile, the Forum for Private Business has attacked major banks for applying huge charges and onerous conditions when lending to small firms.

Paul Thompson of Acorn Commercial Finance said: "This can only benefit the business finance sector; though given our experience of the market and the fact that we work closely with many major institutions, I would urge caution.

"If you look carefully, as we do, at the Government's previous announcements, it's probably worth keeping the Champagne on ice while we wait and see if words develop into actions."