BoE director says SMEs need more business loans

Small business bank account holders need better access to credit, according to one Bank of England official, urging business loan regulations to be loosened.

BoE executive director of financial stability, Andrew Haldane, called for an easing of the lending requirements for small businesses to access working capital in order to bolster the economy.  Lending activity has reportedly declined by 10 per cent every year, leaving small and medium sized business out in the cold due to what they say are unaffordable loan rates – yet financial services providers say that demand has declined on its own.

Mr Haldane made the suggestion that providers of business lending need to review their risk and return assessments and turn away from the focus of the collateral banks require of their applicants and instead focus upon the benefits small businesses could provide for the faltering economy.  The executive director said that the present state, where loan rates are calibrated to reflect how much risk the lender assumes, should be reflective of the returns the UK society would reap instead.

There is a heated debate between regulators and lenders currently regarding this very issue.  Financial services providers, who are now facing new legal regulations that require them to hold additional levels of capital, are looking to either reinforce strict lending criteria or reduce their loan books in an effort to control cash flow, while regulators challenge banks and business societies to keep loans and credit affordable for businesses in light of the economic downturn.

Mr Haldane made the suggestion that regulators should permit banks to keep credit supplies for important matters through the use of a capital buffer.

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