Confederation follows BIBA's stance on small firms.
It seems that insurance brokers’ pleas for banks to increase lending to small businesses are falling on deaf ears. Last month, Eric Galbraith, chief executive of the British Insurance Brokers Association, wrote to the business minister Baroness Vadera in an effort to persuade the Government to put pressure on banks to up the number of loans they give to small companies. Galbraith’s fear was that, with money tight, small businesses may forego insurance cover, resulting in a loss of income for insurance brokers.
To be fair, senior members of Gordon Brown’s Cabinet are well aware that many small businesses are in dire need of loans. The Chancellor of the Exchequer Alistair Darling and the business secretary Peter Mandelson recently voiced their concerns about the plight of small businesses and, in discussions with banks, stressed the need for an increase in lending. But, despite these exhortations, the banks are keeping a tight grip on the purse strings.
This week, the Confederation of British Industry warned that the relationship between small businesses and banks had taken a turn for the worse, and that, as a consequence, job losses could escalate sharply over the coming months if banks continue to refuse to lend.
John Cridland, deputy director-general of the CBI, said the deteriorating relationship was one of the “worst consequences of the squeeze on credit”. He added: “Over the winter, there will be significant refinancing by a high number of businesses and we really need to see banks become more open to business.”
Though it may now be academic, it does raise the question of why the Government didn’t make increased lending to small businesses a condition of the financial sector bail-out. The banks argue that lending rates must be kept high to reflect the cost of funding loans, but this seems quite an arrogant attitude, especially considering the fact that small business are net lenders to banks – that is, at the end of June this year, small businesses had £54.5bn deposited with banks, but their borrowings amounted to only £44bn.
Mandelson complained this week that the bank’s reluctance to lend was undermining the “decisiveness” being shown by Brown in dealing with the downturn. Considering that several major banks recently went cap in hand to the Treasury asking for financial backing, it’s time they showed a little more empathy for the plight of small businesses.
