The government says that its loan guarantee scheme will provide £20bn of public money over the next two years to help the country’s major banks lend to SMEs. It is a key policy in the coalition’s economic growth strategy.
However, the Federation of Master Builders (FMB) has warned that the initiative could be jeopardized if banks are allowed to continue to discriminate against certain industrial sectors such as construction that they consider to be too risky.
FMB chief executive Brian Berry said: “The government’s plan to provide up to £20bn of government guarantees on unsecured borrowing by banks is a welcome boost to help ease lending to small businesses. However, the scheme will fail to help many small construction companies because banks’ lending criteria still consider the construction sector as ‘too risky’.
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“Small construction firms are the perfect target for economic growth as they generate the most local jobs in the economy. However, they are being held back from delivering growth and jobs because many banks have written the construction sector off as ‘too risky’ and have either withdrawn credit, or increased the cost of it irrespective of the financial standing of the individual firms in question. Nearly 58% of FMB building companies reported last year that they had been unable to implement growth or investment plans because they had been unable to raise the necessary funds from the bank and nearly 49% had lost business because a bank had refused funding to a client for a project that otherwise would have gone ahead.”
Mr Berry concluded: “If the scheme is going to be maximized, the government must ensure that banks cannot opt out of lending to key sectors of the economy based on blanket judgments.”
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