It is easy to say to banks: lend more, but in fairness Bankers are probably as confused about the economic outlook as the rest of us. The government has been hoping that loads of confusing initiatives will do the trick to motivate Banks to lend more to SME’s; we all know this has not happened. So rather than introducing more schemes like the Enterprise Finance Guarantee or to introduce more Billions of pounds into Quantitative Easing (which we all have to repay one day and which does not seem to do us any good) I would like to propose a simple idea.
The banks are saying they cannot lend more or they cannot lend at reasonable rates because they have no access to wholesale funding, in other words they cannot package certain loans and resell them to investors. Ok, let’s accept that they are not joking. So why does the government not offer to buy packages of certain loans for certain industries. Let us take property development as an example. It is very important for the economy, but small to middle sized developers find it difficult to obtain sensible finance. But the government could ‘repurchase’ these types of loans from the banks. This can be applied to many business types or industry types. The banks would have access to refinance their loans and there would be no room for any excuses – it is really as simple as that. What do you think?