It is now a truism in Westminster to argue that banks are failing UK businesses, especially smaller ones, by reining in lending, thus thwarting growth. The problem with this truism is that it isn’t, er, true. And it also distracts attention from the real funding problems that businesses struggle with, which means government policy consistently misses the point.
This myth about banks refusing to lend is based partly on anecdote and partly on the sharp decline in the stock of lending to small and medium-sized enterprises since the credit crisis.
Demos Finance research published today shows that only a tiny proportion of businesses want bank loans but are unable to get them: just 40 per cent of all UK SMEs made a credit application in the past year, and only 1 in 25 SMEs applied and were refused. Despite this, they receive an extraordinary amount of attention.
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