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It's all about bank lending!

Vince Cable used the Lib Dem’s conference as a soapbox to formally announce a new Business Bank on Monday.

Once it’s taken off it’ll provide a billion pounds specifically for small business lending, allowing cash starved firms a decent and realistic chance to grow and create jobs.

Details are scant so far, but among the few offered up by the Business Secretary was a timeframe of 18 months to be fully operational, and that’s a long time.

But this is perhaps concerning for another reason too if it suggests the Government suspects banks might still not be lending ‘properly’ again even as late as Q1, 2014. That would be really serious.  

There’s no doubt action is needed – the banks aren't lending enough and we know this. It’s our view 18 months is too long. We also would like to see more of a dual focus from Government too. Just because they have announced this new initiative, it doesn’t mean they can give up on bank reform  - that is getting more transparency in high street bank lending and improving ethics in the way banks treat their small business customers.

And of course we need to see this all backed by more lending through alternative sources of finance, such as peer-to-peer platforms.
The new fund will also have to address the same barriers to small business finance that are displayed by existing banks – including poor risk-profiling and steep lending costs as a result of the increasing over-centralisation of decision making. The new bank will also operate through existing lenders.

That said, hopefully it will have the capacity to get more long-term lending to growing businesses in time, and the Government's willingness to put a billion pounds into the scheme might incentivise other big investors to lend to small businesses. Time will tell on this latter point.

However, when we surveyed our members in July the majority wanted any new government stimulus to come through non-bank channels, so SMEs may well greet this announcement rather coolly.

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