Bank lending debate continues on both sides of the pond
Anyone who sees the problem of banks not lending enough to SMEs as a peculiarly British affair is very much mistaken.
A few weeks ago over in the US, the Federal Reserve Chairman Ben Bernanke accused American banks of “systematically denying loan requests from creditworthy small businesses”. However, in the States, this announcement was largely viewed as puzzling by bankers and small business representative bodies like the Independent Federation of Small business. Apart from the government it seems, there is a generally held view that there aren’t enough viable small business borrowers in today’s market.
Loan officers say that most loan applications fall into two categories: helping a business stay afloat and business expansion. Too many still fall into the former group. Banks in the States can’t afford to take on the risk, especially after all the criticism of irresponsible lending aimed at them since the credit crisis began. Another big issue over in the USA is the declining value of real estate- businesses often don’t have the necessary collateral to back up their loans. On top of all this, the threat of a further slowing down in the economy means that many businesses are trying to reduce their debt levels- not add to them.
Having said all that, something must be done to get small businesses up and running again. Both here and in the USA, small businesses employ the majority of workers, and create more than 60% of brand new jobs. It’s still a little unclear whether foisting loans on them will solve the problem just yet.