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Despite all his tough talk when he was in opposition as the Liberal Democrat Shadow Chancellor, since becoming Business Secretary in the Coalition Government Vince Cable has been singularly unable to get banks and building societies to open their wallets and start lending to businesses or individuals.

There is no doubt that Dr Cable is well aware of the problem but somehow he doesn’t seem to have been able to get to grips with it. The banks keep saying that they are willing to lend but that “there is no demand” and so far Dr Cable seems to be accepting that statement.

But of course it is all nonsense as anyone trying to get a mortgage or get a loan for their business (or just keep the one they currently have) will tell you. Even if you get an offer the terms are unacceptable. For example, at a time when UK base rate is at the lowest lever ever, and has been for many months, the interest rates charged by banks is increasing.

What this means is that house prices are not only depressed but despite a small recent rise are likely to get even lower. People are trapped in negative equity at a time when many are likely to loose their jobs and may be unable to move elsewhere to find work. Mind you if businesses are starved of cash there will be fewer and fewer jobs on offer.

Reports of businesses having difficulty finding finance are backed up by a new report released today by the Institute of Directors (IoD).

The report’s key findings show that 1 in 3 firms which applied for finance between 1st January 2010 and 30th June 2010 were declined by their bank and that lending criteria has become more restrictive with regard to the amount of security requested by the banks.

However that doesn’t give the full picture of the problem because whilst 2 in 3 loan requests resulted in an offer it doesn’t mean that the loans were ever actually made.

For example I recently came across one business which was looking to purchase a new asset valued at just over £1 Million and which was willing to put up 40% of the cost themselves. They did get an offer from the bank but that involved them putting up extra security of other assets and being charged a rate of 12% over base rate. They declined the offer. They were one of the 2 in 3 who were offered a loan but the fact is they declined it because it was unacceptable and unreasonable. It wasn’t commercially viable.

I mentioned this to a banker who told me that where an offer is made and declined this is used to justify the figures given to Vince Cable that “there is no demand” and as a result more and more lending offers are being made on terms that the banks know will not be accepted so that they can record that they made an offer so backing up their claims that they only turn down 1 in 3 applications and the only reason they are not lending more is because “there is no demand”.

So what is Dr Cable going to do to get the banks lending again? I suspect that whilst he is busy criticising bankers and planning ways to charge them ever more tax that he is going to get nowhere fast. Certainly banks such as HSBC and Barclays who needed no financial help from the British taxpayer are likely to tell Dr Cable where to get off and they may even move their HQ’s elsewhere.

But banks such as Royal Bank of Scotland, Lloyds, Halifax, Bank of Scotland would have gone bust without the huge injections of capital from the British taxpayer. These banks are pretty well nationalised and as such the British Government, on behalf of the British taxpayer, are the largest shareholder. It is time that the shareholders insisted that the purse strings were relaxed.

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Category: Credit Crunch

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