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Credit Where It's Due: How to revive bank lending to British Small and Medium Sized Enterprises

Credit Where It's Due: How to revive bank lending to British Small and Medium Sized Enterprises

Will Hutton and Kenneth Peasnell
28 November 2011

This report suggests that The Treasury could significantly boost lending to SME’s by adopting a innovative approach to credit easing. The new scheme would mean banks could invest less of their own credit in SMEs, and with measures in place to disincentivise risky lending, these investments would be profitable for banks.

The proposal would see Special Purpose Vehicles (SPVs) set up for each participating bank, and these loans would be controlled by tight measures. The Treasury would have the power to reign in the process if it felt SMEs were being over-funded – averting the risk of bankruptcy. In addition, loans from banks to SMEs would carry fewer risks by being subject to normal commercial rules.

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