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8 reasons why loans are behind economic recovery
Loans often end up funnelling money back into the local economy.
13:18 07 May 2013
Signs of economic recovery are cropping up intermittently, the latest among them being the improved stability of the banking industry. Banks are in a better situation and will be increasing their loans to small businesses to foster greater economic stability locally.
The availability of loans was drastically reduced for a time, but there has been positive news on the banking front lately. Losses due to customers who aren’t able to pay their loans have fallen, and write-offs may fall by up to £9.3billion.
The banking industry was also more lenient and retained higher-risk loans than they might have in the past, but they still say that any increase in the interest rate could cause financial risks both to individuals and banks.
What does improved availability for loans mean for the economy?
- Small businesses will be able to invest more in their own success.
- Loans create an immediate turnaround by often being used for local items and services.
- Companies may be able to employ more people, directly and/or indirectly.
- Beneficial time for small business start-ups.
- Greater flexibility from the banking industry.
- Lower interest rates for consumers since banks will receive lower interest rates as well.
- Improved cash flow for banks, which can then be translated into more loans not just for small businesses, but for individuals as well.
- Availability of loans is also a positive indicator for a recovering economy.
This is just the beginning of a recovery phase, but the plan to pump more money into small businesses that may collectively employ many people is a beneficial idea.
Loans are an excellent way to pump money back into an economy to help it recover, as long as banks are still sensible about the financial competency of the entities they lend money to.
Interest rates will still need to remain low in order to help the economy recover.