Vince Cable has refuted claims made by the banks that 80% of loan applications from small businesses are being accepted.
RBS and Lloyds Banking Group have both claimed that four in every five loan applications from SMEs are approved. But the Business Secretary responded by reasserting his view that the banks are still failing to meet demand, while the figures were also contradicted by an IoD survey showing that two-thirds of loan applications were being declined.
Speaking to the Independent, he said: "This is misleading. I think they are raising the hurdle. All the evidence from business, from the Institute of Directors and other bodies, is that banks are not lending as much as is needed.”
The Treasury and the Business Department are launching a green paper this week examining the desirability of imposing new lending targets on the semi-nationalised banks. Cable, who as head of the lending forum he revived recently has spoken to businesses about their experiences raising finance, has consistently taken a hard line on the banks and proposed net lending targets while in Opposition.
We need to find ways of getting more equity funding into business, maybe through something like the old 3i, to help growth with tax breaks or tax incentives without it being a way of avoiding paying tax
Vince Cable
However, previous attempts made by the previous administration to force banks to lend largely came to nothing. Meanwhile, lending under the loan guarantee scheme introduced by Labour fell by 23% in the six months leading up to the election.
The consultation will also consider alternatives to bank debt, including equity and public market instruments like covered bonds, the possibility of providing tax incentives to encourage private investors to back fledgling companies, and regional stock exchanges.
"The system is still biased towards debt and we need to find ways of getting more equity funding into business, maybe through something like the old 3i, to help growth with tax breaks or tax incentives without it being a way of avoiding paying tax. We are working on all these issues,” said Cable.
Mark Hoban, financial secretary to the Treasury, said earlier this month: "Currently, only 1% to 2% of small businesses use equity finance at any one time. That is a drop in the ocean and a missed opportunity for the UK's small businesses, and for our economy."
Cable warned that the economy was approaching an impasse as instruments forming a key plank of economic policy would soon expire or no longer be viable. "We are still identifying new measures, but it's important because the effects of quantitative easing will soon be wearing off, and next year the guarantee insurance scheme comes to an end, so we need to look at replacing this."
