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Bank Lending (Small Businesses)

Volume 530: debated on Tuesday 21 June 2011

7. What assessment he has made of trends in bank lending to small businesses in the first quarter of 2011. (60778)

Under Project Merlin, the banks loaned a total of £47.3 billion to UK businesses in the first quarter of 2011, including £16.8 billion to small and medium-sized enterprises. The Government are encouraged that banks are broadly on target to meet their overall commitments. However, it is disappointing that banks are behind schedule on SME loans, and they clearly need to do much more work to deliver on their commitments.

A number of small businesses in Islwyn tell me they have experienced an increase in the overall interest rate charged by banks, despite the base rate being at an all-time low. What are the Government doing to address that?

We must ensure that banks signal to businesses that they are open for business and that they have the capacity to lend to businesses. That is why we work with the banks to deliver Project Merlin, but, as I have said, there is more work for the banks to do to ensure they lend to small businesses, and we will continue to hold them to account on that.

Did Project Merlin also cover transparency in respect of the covenants banks require small businesses to put forward, and has that increased over the last three or four years? I ask because this seems to be one of the big barriers to small businesses taking out loans.

My hon. Friend makes an important point about the relationship between banks and their customers and the transparency of that relationship. That is why the British Bankers Association business taskforce has introduced a range of measures to look at the relationship between banks and their customers and we will continue to monitor that work. It is important that banks are transparent with their customers about the terms on which loans are offered.

My constituent Ashlea Hassan came to see me last week with her idea for setting up a small business. Despite having been told by every bank she has visited that she has an excellent business plan, a brilliant concept and enough equity in her house, not one of them is prepared to lend her the £40,000 she needs to set up her business. What advice does the Minister have for my constituent?

I would encourage the hon. Lady to suggest to her constituent that she pursue the appeal route that each bank has to enable businesses to appeal against lending decisions. That is a very transparent process that would, one hopes, reach the outcome that her constituent wants. The hon. Lady could also encourage her constituent to approach business angels for investment. We announced in the Budget a review of venture capital trusts and enterprise investment scheme reliefs to encourage more investors to commit more money to small and medium-sized enterprises.