Lloyds joins SME loan price war

Tim Wallace
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CHEAP funds from the government filtered through to small and medium sized enterprises (SMEs) yesterday as Lloyds became the latest bank to cut borrowing costs.

It comes a day after RBS announced a similar move to cut rates for manufacturing firms, while several leading banks cut mortgage rates last month.

The Bank of England is providing cheap funding for banks as long as they increase lending to firms and households. The Funding for Lending scheme aims to boost lending in an effort to improve investment and spending.

Majority-state owned Lloyds has cut one percentage point from the interest rate on new business loans of £1,000 or more, for all SMEs and mid-market customers.

Credit standards are not changing, so the only way the level of lending can increase is if existing credit-worthy firms apply for more loans, or if more businesses are enticed to apply by the lower interest rate.

“SME and mid market businesses are vital to the future growth of the UK economy and that is why we are committed to passing on the full benefit of reduced funding costs to them so as to support their growth plans,” said Lloyds’ Andrew Bester in a statement.