Why do the UK banks find it so hard to help small businesses during the current crisis?
They cannot lend more than usual, because that would be a relaxation of their attitude to risk. Relaxing their attitude to risk is what got them into the current mess in the first place. If they extend unusually high credit to failing businesses, without first giving new loans to healthy businesses, then their portfolio as a whole will get more risky. Unfortunately, healthy businesses are repaying debt, not increasing it.
To stimulate healthy businesses to approach the banks, I suggest an enlightened partnership between government and banks. The government could create new schemes to incentivise capital expenditure by healthy businesses. The banks could then coordinate their lending to match the government incentives, where a business can prove a good growth plan. Increased lending to good businesses might then create room to extend facilities to businesses in difficulty.
