Chancellor faces out banks on lending to SMEs

The Chancellor of the Exchequer is set for a run-in with the UK’s bailed-out banks this week, over lending to small businesses.

The BBC has reported that Alistair Darling is “extremely concerned” that banks are charging high rates to small and medium sized enterprises (SMEs), despite pledges made on commercial lending in return for taxpayer support.

The Chancellor has invited bank chiefs to the Treasury for a meeting this afternoon when they are likely to be reminded of their responsibilities and that the Bank of England’s base rate is currently at 0.5%.

As with mortgage lending, banks claim that they cannot fund their commercial lending at close to base rate levels because they have to borrow on the wholesale money markets, where rates can be higher.

Meanwhile, the 70% state-owned RBS is launching a press campaign aimed at small business customers in the days ahead.

Following its bail-out, RBS agreed to make an extra £16 billion of lending available in the UK plus a further £1 billion specifically for small businesses, as part of the Government’s Working Capital Scheme.

According to reports, RBS is behind in its targets but will try to convince the Chancellor that it is accepting the bulk of credit applications from business customers amid a fall in demand, as commercial borrowers tighten their belts in the recession.

Finally, accountancy firm, PricewaterhouseCoopers (PwC), has reported that the second quarter of 2009 saw a slight drop in the number of corporate insolvencies in England and Wales.

In the three months to the end of June, 4,814 companies became insolvent, an 11.3% decrease on the previous quarter.

However, PwC is warning of a “potential climb” in the number of companies going bust during the final quarters of this year.

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