Government to tackle bank lending log-jam

The coalition government has today ramped up the pressure on banks to start lending vital cash to small businesses.

Business Secretary Vince Cable has published a green paper to address the problem of small businesses being unable to access funding from the banking community.

Cable wants banks to start lending to small businesses - and has threatened that their dividends and bonus regimes may come under strict scrutiny if they do not comply.

He said: "If we don't anticipate and tackle finance barriers now we could face a big problem in the future. Left unchallenged, a lack of accessible finance for businesses could prevent the recovery accelerating.

"I've heard the problems businesses are facing in getting bank loans up and down the country. They need innovative ways to access finance from other sources to grow our firms and economy.

"That's why this green paper is so important as we look to help viable firms get the money they need."

Many small businesses, including fledgling pub operators, have argued that despite claims from financial institutions to the contrary bank lending has effectively dried up.

Chancellor of the Exchequer George Osborne said that "if businesses are to play their part in promoting economic recovery it is important that they are able to access a diverse range of finance choices in a stable macroeconomic environment".

However, banking analyst Ralph Silver told BBC Radio 4's Today​ programme that banks had closed the door to start-up businesses looking for finance solutions.

"In the past you'd at least get an audience with a bank to get across your idea. Now you don't even get that.

"Banks may say they approve four out of five lending approaches, but these will be to businesses to which they've already lent money. It's dead otherwise. If you want money you'll need to get it from somewhere else," he added.

To view the government's consultation paper on accessing finance go to www.bis.gov.uk/businessfinance