Banks to lend £76bn to small businesses

The UK's leading banks have committed to lend £76bn to small businesses this year, as part of a package of new credit measures worth £190bn.

The agreement, which constitutes a 15 per cent increase on the amount lent to small businesses in 2010, came in the wake of the UK's major banks being hit with an £800m levy on profits, courtesy of George Osborne, the Chancellor of the Exchequer, and as the row over big bonuses for banking staff rumbles on.

In a statement the government said it welcomed the banks' commitment to lend to UK businesses, which followed a series of discussions covering bankers' bonuses, regional growth and the Prime Minister's 'Big Society' aspirations, under the banner 'Project Merlin'.

However small business organisations were keen to stress there were caveats to the new deal.

John Walker, the Federation of Small Businesses' national chairman, said: "Today's announcement should not be allowed to let the government or the banks off the hook, and is a preamble to what we hope will be bigger announcements from the Independent Banking Commission.

"The news that banks have agreed to lend £76bn specifically for small firms is a welcome step. However, we wait to see how the banks will ensure that the smallest firms and new start-ups will receive vital cash.

"It is also a concern that the additional £1.5bn will only go to businesses looking to receive between £2m and £10m in equity finance and so will not hit the smallest of businesses that need it most.

"Many small firms aren't going to the banks to access finance and credit and the main problem they face is the cost of credit. Many small businesses have lost faith in the sector and are looking at other means of finance - and it is the smallest of firms that need finance most."

And David Grant, head of UK Business Mortgages at Christie Finance, said: "Given our 2010 experience of increased year on year activity, we would hope the majority of this £76bn is directed towards new transactional business and not just simply re-priced, refinanced and re-cycled existing small business debt. Much of last years lending was just that and thereby enabled the Banks to conveniently label it 'new' lending."

And Tony Greenham, head of Business and Finance at think tank the New Economics Foundation, said: "The very fact that this pantomime has taken place shows that our banking system is not fit for purpose. Do the governments of other countries need to go cap in hand and plead with their banks to do their job?

"Why have no figures or commitments been given for net rather than gross lending by the banks? Gross lending will only boost the economy if it increases faster than loan repayments by borrowers - a net figure is far more meaningful.

"To what extent might some of the additional lending from the five banks (including Santander) simply displace lending from other banks?

"The government is still in denial over the real issue that the excessive pay within the banking system is a clear signal of non-competitive and poorly functioning markets where a small number of companies enjoy unmerited economic power. It continues to dodge the issue of excessive bonuses in what has become a heavily subsidized industry.

Meanwhile the UK's leading banks denied they operated a policy of 'no lending' to those in the on-trade, arguing they assessed loan applications on a case-by-case basis, looking at factors including the quality of management and business plans presented.