Banks feel under no obligation to lend to SMEs

The economy is in a bad state and unemployment is rising, and small businesses are also suffering as banks are refusing to lend to many potential customers. There are no legal obligations for banks to lend to people so they are only motivated by their desire to see borrowing increase and apparently this desire is not very strong.

Banks have said that the demand for loans is low and that is why they are having to refuse loans to some of the people who come to them. The Small Business Federation disagrees with this statement however and says the banks are receiving many applications for loans. Small businesses often need an injection of capital from a bank loan to allow them to expand.

Critics have said that banks are capable of making the number of refusals look less than they actually are by only noting those refusals of formal applications, despite many people being refused after a casual enquiry. Business owners also fear that the requesting of a loan may make their overdraft more expensive.

The fact that the economy is doing badly can be a good opportunity for those businesses which are strong enough to weather the bad times. They are seeing their competition going out of business and this means there is a good opportunity to expand. The problem is they need capital to do this and they banks are refusing to provide it.

Osbourne’s promise of a country that will encourage business now seem hollow to many of those wanting to borrow. It also seems the government is doing little to encourage more manufacturing in Britain, something that many people want. This rebalancing of the economy will be a very difficult task as the growth figures in manufacturing need to be very high, recent figures suggest that manufacturing is still declining.