Good News on Bank Lending

When Mervyn King, Governor of the Bank of England, announced the £80 billion Fund for Lending scheme at his Mansion House speech in June this year, he said it would be a ‘joint effort’ between the Bank of England and the Treasury. On August 1st, the Fund for Lending made cash available to high street banks at low interest rates specifically to be passed on to their small business customers. The aim is to encourage the banks to lend and businesses to gain the finance they need for growth which will help the economy.

The First Response

Banks involved included the Royal Bank of Scotland (RBS), which badly needs to lift its image following the technical problems that recently delayed incoming payments to the accounts of many of its customers.

RBS has now announced that it will cut its rates on loans to small businesses by up to 1.6%. It will make £2.5 billion available for these loans to small businesses with a good business plan. This is really good news at a time when the rising costs of finance have been putting off many SMEs from borrowing to expand. It is especially welcome in London and the South East where finance under the Regional Growth Fund Scheme is not available.

More Good News

RBS has also decided to remove arrangement fees which can add an extra £1500 or so to a £100,000 loan. This plus the lower interest rates could result in savings of about £4,000 on the loan repayments.

According to Chris Sullivan, Chief Executive of RBS and NatWest Corporate Division, this is the best ever offer for SMEs, and the best available in the UK. He said, ‘RBS and NatWest are determined to play their part in supporting the economic recovery. The clearest and strongest way we can do this is by letting people know that we are open for business and ready to support their ambitions on the best terms available.’

John Cridland, Director-General of the CBI also commented, ‘Rising borrowing costs have held back the growth ambitions of many small and medium-sized firms. This scheme should support banks to make finance more affordable to businesses and consumers, while also encouraging banks to lend more.’

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