The Banks Still Won't Lend Enough to Small Businesses

The banks – even those all but owned by us – still won’t lend enough to small businesses. They must be forced to do so, according to Guardian 22nd August 2011

How do banks get away with it? Why are the politicians so supine? Even the complaint of business goes unheeded. Banks that brought us to our knees still exert extraordinary power: see how they fight off Europe’s modest proposal for a transaction tax to recoup a little of what they owe. With the economy in a coma, unemployment rising, latest retail figures flat and 10% of high street shops closed, banks still won’t lend enough to entrepreneurs trying against the odds to get businesses going.

Project Merlin promised to make banks lend more, especially to small business – but they are still under-lending. With no sanctions, banks are only nudged by a “desire” to see lending rise. They claim demand is weak, but the Small Business Federation replies with myriad examples of companies turned away. Its survey shows that just in the last year, a third of small businesses missed opportunities to grow for lack of loans.

I wonder, why aren’t we speaking about the “lack of MONEY” instead of  “lack of LOANS”?  Wouldn’t that be more precise? The small businesses need MONEY to grow, they need a medium of exchange. Perhaps we were living in this debt-money based system for such a long time, that it somehow impregnated into our thinking, so that it doesn’t seem odd to us anymore that we have to take more loans if we want to grow.

Imagine a situation where businesses which want to grow, used their own funds – either accumulated from the profits from previous years or provided from personal savings of the owners of the businesses. Or they would just easily get a funding through peer-to-peer or business-to-business lending.  There would be a sufficient amount of the medium of exchange in the circulation – in the hands of common people and in the hands of businesses. Banks would act as financial intermediaries between savers and borrowers, so they would be motivated to make loans, otherwise they wouldn’t be profitable – since they would have to pay interest (unlike today) to the people who entrusted them their savings for investments.

…and just to make the picture more complete: we wouldn’t have to pay such high taxes and the prices of all goods would be stable… These all would be the results of a reform of the “money creation process” that Positive Money is proposing.

No regulations would be needed. Nobody would have to force banks to anything. No Merlin projects… Just fair rules of game for everybody, including banks.

Just stop and think how far banking has come from its roots when we have to force banks to lend.  Shouldn’t the lending be their very purpose of existence?