Business loan providers tap European Investment Bank

Two major providers of business loans in the UK have decided to tap the European Investment bank in order to increase the amount of funds they can provide to small business bank accounts.

Both lending institutions Royal Bank of Scotland and Santander have gone with so-called ‘discounted’ loans through the EIB.  RBS is currently applying for £300 million in funding that will be available at a discounted interest rate of 0.6 percentage points under its standard rate, while Santander has just secured £150 million that will be available at a rate discounted by 0.7 percentage points.

Corporate and commercial banking head for Santander, Steve Pateman, remarking on the bank’s new initiative, said that making sure businesses are able to gain access to investment capital in an affordable way is key to the economic recovery of the UK.

However the decision of the two banks to apply for funding from the EIB comes amidst falling figures in regards to small business lending in the UK.  The Bank of England recently stated that there has been a 3 per cent drop in lending to businesses with £25 million or less in the year to February.

Even harder hit were small businesses with sales of £1 million or less.  Business Department statistics indicated that in the year from December, these classes of businesses saw a 6 per cent drop in lending.

Banking institutions in the UK have laid the blame at the feet of a decline in demand for business lending. RBS chief executive, Stephen Hester, recently stated that demand for credit from small businesses has been falling off, with 2011’s first quarter seeing a 7 per cent reduction in gross new lending to £6.7 billion.

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