Business Lending Could Tighten in 2011

A four-year extension of the Enterprise Finance Guarantee Scheme may be a welcome boost to entrepreneurs, but it could well prove a drop in the ocean when rising job losses in the public sector begin to take their toll on recovery in the private sector.

The January increase in VAT will also have an impact on economic growth which in turn could lead banks to tighten up on lending to small and medium-sized businesses. This will increase the importance of alternative sources of funding such as that offered by business angels.  Stephen Alambritis of the Federation of Small Businesses warned that the government’s work could be undone by banks returning to their “comfort zone” if the economic picture darkened when value added tax rose to 20 per cent in January and 600,000 public sector job losses started to take effect.

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