Two of the United Kingdom’s largest banking groups have been criticised for their refusal to offer borrowing help to small commercial property businesses, despite agreeing to a Government-backed scheme to help struggling firms. The National Loan Guarantee Scheme was implemented two months ago now, yet Lloyds and Santander remain the only banks that signed up to the initiative which are still withholding loans.
The National Loan Guarantee Scheme was proposed after banks fell short of their lending targets for small commercial property businesses by over £1 billion under the previous lending initiative, known as Project Merlin. It was announced by Chancellor George Osborne in October, as part of the Government’s autumn statement. All major banks, other than HSBC, agreed to participate, and the terms outlined in the agreement stated that banks would subtract 1 percentage point off their loan rates to make repayments easier for commercial properties that would otherwise struggle to pay it back.
In other words, the National Loan Guarantee Scheme is a credit easing initiative, for which the banks who signed up could benefit greatly from. For example, in order to be able to offer cheaper rates to small commercial property businesses, the banks can obtain funds more cheaply on the wholesale market in order to fund these discounts. The Government have also assisted in the financial side of the scheme, making it easier for banks to offer cheaper loans of up to £20 billion for the commercial properties most in need of help.
Forum of Private Business representative Phil McCabe said; “This is massively disappointing.
“We said all along that we had serious doubts whether the smallest firms most in need of cheaper credit would benefit from this scheme. Sadly, it looks like this could be the latest failed attempt to make the banks lend.”
As Movehut revealed last week, quick loan companies such as Wonga have begun cashing in on commercial properties struggling to stay afloat. They offer loans of up to £10,000 that can be transferred to the company bank account within 15 minutes, yet the rates can make it impossible for small businesses to repay the interest on the original loan. Unfortunately, with an average of 70 small businesses being forced to collapse due to the banks’ refusals to lend, many will have to make the hard decision of whether to risk plunging themselves even deeper into debt or losing their business completely. Of course, the more commercial property businesses that close, the worse the unemployment crisis becomes, meaning that the country also suffers from the loss of these firms.
Santander has not yet revealed when or how it plans to uphold its side of the National Loan Guarantee Scheme which could benefit struggling commercial property businesses during the recession, despite the fact that the Spanish bank has over 25 million customers in the UK alone.
Similarly, Lloyd’s is offering discounted loans – but only if the amount borrowed is more than £25,000. The Lloyd’s Group is currently supported by more than £20 billion of Government funds, following the banking crisis and subsequent Government assistance.
Chuka Umunna, Shadow Business Secretary, said; “It’s outrageous that the banks are withholding the benefits of this scheme from the very small businesses it was set up to help.
“The full discount should be offered to those with loans of less than £25,000. Santander like all other banks benefits from an implicit taxpayers’ subsidy.
“We expect them to do all they can to help small businesses and they need to explain why they are not using this scheme already.”
Although all other banks included in the scheme, such as the Royal Bank of Scotland and Barclays, have begun to offer more credit-friendly loans, none were willing to reveal how much had been lent to small commercial property businesses in the two months since the scheme began.
Stephen Pegge, of Lloyd’s, said; “Having surpassed our Project Merlin targets last year, we are the only bank to unilaterally pledge on lending to SMEs in 2012. We have promised to deliver at least £12 billion of gross lending to SMEs in 2012.
“We also continue to buck the market – our net lending in the first three months of the year was up 4 per cent in a market that was down by the same amount.”
Santander also responded to the claims, saying; “We are working towards our launch of the National Loan Guarantee Scheme and expect to start issuing loans through it shortly.
“All NLGS loans will be issued at the full discounted rate.”
Are you a small commercial property business struggling to obtain finance from the banks? Do you believe the banks should be given a little more time to prepare, or that they should be doing more to help struggling commercial property businesses now?
