I hear from business owners and advisors how badly the banks are behaving towards the small business sector, how little money they are prepared to lend and how tough their credit committees are on new applications.
Banks are being told to rebuild and strengthen their balance sheets, but on the other hand to increase their lending. One way to strengthen the banks’ balance sheet is not to lend so much….
Banks don’t make much profit lending money to small businesses. Let’s say the bank can borrow at 3% and lend to the small business at 7% so they will make 4%.
Over the course of a year, on £100k of lending, the bank will make £4k. That means an awful lot of good loans are required to make up for one bad loan, and it is no wonder the banks are cautious