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Is Cheap Credit for Small Business the Answer?

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April 26, 2013

London financial districtBy Bob Coleman
Editor, Coleman Report

Is Cheap Credit for Small Business the Answer?

Our friends across the pond seem to think so reports the BBC.

For every extra pound that banks lend to small companies, they will be able to borrow £5 very cheaply from the Bank of England, and £10 if that lending takes place this year.

However, if supply is increased, it still appears there is a demand problem.

“But, and this matters, neither the Bank of England or the Treasury are addressing the main cause of banks wariness when lending to small businesses, which is that they frequently see the risk of making losses as too great.

“There’s another thing, which you might call the ‘taking the horse to water’ problem, and which the banks think is more important.

“They say the main problem is that most small businesses don’t actually want to borrow – that they would rather pay off their debts.

“So, for example, cash placed on deposit by small businesses has been growing.

“And the rate of applications for loans by small businesses to the market leader in small-business banking, Royal Bank of Scotland, is down a staggering 46% compared with before the 2007-08 financial crash.”

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