The recent attempt by the UK government to get the country’s major banks relax lending conditions to small businesses could be seen as an attempt to downplay the impact of the credit crisis. What the government wanted to do, as some analysts would argue, was to make people believe they could effectively control the situation and know exactly how to respond to every problem in the most appropriate manner.

While it is obvious that banks, even after benefitting from a huge bailout funded by taxpayers, have continued to make access to loans harder for small companies the government at the weekend moved to get the banks to act fast in helping smaller businesses survive the credit crunch and by extension the ordinary people. Confirming that things were still very rough for borrowers the director general of the British Chamber of Commerce David Frost said that funding for small firms were still not easy to come by.

The need for banks to be cautious

Perhaps banks are still being cautious, and being very mindful of the roles bad debts played since the beginning of the credit crunch in dragging many lenders to their eventual collapse.

Nonetheless, banks need to realise the bailout, although it received mixed feelings and has so far not permeated every nook and cranny, was dependent on the condition that they would revert to the lending conditions of last year.

Making the conditions even harder now does not really reflect a reciprocation of government’s gesture.

Again, as we blame banks and or other lenders we must turn the mirror on ourselves and ask what we have done to improve our credit worthiness. One of the best ways to improve the access we have to loans, either as individuals or owners of small businesses, is to improve our credit ratings. As individuals we need to improve our credit history by paying our bills as promptly as required and avoid drawing to ourselves unnecessary debts. We must also ensure that what we incur as debts could be settled by our income at the end of the day. We must avoid the temptation, no matter how strong we are driven to it, to run up more debt.

As the issue of loans and relaxing tough lending condition are on the front burner in recent days, reports have identified places like London and Birmingham as two hot places for loans to people with poor credit. The study revealed that they beat others like Sheffield, Northern Ireland, Cardiff and Swansea amongst others to emerge tops as the demand for unsecured loans rose sharply across the country in the midst of the credit crunch.

Interestingly, some of the prominent reasons advanced for seeking such loans by families range from debt consolidation, home improvements, holidays to weddings. Yet people seeking these loans were identified as those with adverse credit.

The big issue here is do applicants consider the possibility of repayment each time they file an application?

On the question of lending to small firms, basing the rate at 2007 level, this could be an important move to encourage entrepreneurship among Brits. As important as this step is, owners of small firms also must strive to earn more trust from lenders. It is therefore very crucial that they exhibit a high degree of credit worthiness. This will make lenders to not only want to lend them whatever amount they ask for to also take the initiative of approaching them to advertise loans.