As you know, here on ATW we do not always go with prevailing economic wisdom. Such is the case with the media outrage today that Banks are “not lending enough” to small business. Let me give you a taste of what the MSM is saying;
The full scale of how the banks are still failing to lend to Britain’s desperate small firms emerged yesterday. Despite a series of public promises from senior ministers and bank officials, lending to business has tumbled in every single quarter of the past three years. Bank of England Governor Sir Mervyn King yesterday spoke out against the ‘harsh treatment’ of small companies which are still ‘suffering’ at the hands of the banks.
This is nonsense.
For starters, of course lending will have fallen from the historic highs that led us into recession! Banks would be crazy not to cut back their lending levels and they should ignore the siren cries of politicians who would as soon as hang them as praise them. The Banks have seen all the bad commercial bets for lending collapse and whilst that is unfortunate that is nonetheless a necessary part of economic realignment. In my view lending should only be extended to those businesses that can make a coherent case for cash. I speak as one of those companies. My experience of the Banks is that they are demanding but also often sensible. Yes they made some VERY poor decisions as to who they lent money to during the property bubble boom and that has come back to bite them and us! But how Earth do we make things better by asking Banks to lend to bad risks? That is simply repeating the folly of the past.
Banks make MONEY by lending. That is their business so the idea that Banks do not want to lend is nonsense. Yes, I know for a fact some Banks have rather less money to lend than they want and this does cause restriction. But we should respect good lending practise and encourage Banks to adopt such sensible policies.
Small business may well need capital injection. This is available from Banks and other sources, sometimes at good rates sometimes not! But in the final analysis, a sound business can always get what it needs so long as it can make a coherent case for it.