King ups the ante on bank lending to small firms

MERVYN King again waded into the row over bank lending rates at the Bank of England’s inflation report meeting yesterday, accusing banks of profiting off struggling small businesses.

“The spread that banks are making on loans is much, much higher than it was before and compared with the decade’s average,” he said. Unlike large businesses, he said that small firms are unable to access other sources of credit by issuing equities or bonds.

His comments come after an appearance before the Treasury Select Committee last week in which he referred to banks’ levels of lending to small businesses as “heartbreaking”.

Small business groups added their voices to King’s, calling on the government to adopt a “carrot and stick” approach to force banks to lend, with penalties for failing to do so.

Phil McCabe of the Forum of Private Business said: “Banks aren’t lending enough to small businesses and when they are the cost is too steep.”