*THELEXCOLUWednesday July 14 2010 Small business lending Before the election, politicians slammed banks for not doing enough to boost small business lending and so support the economic recovery. Twe surveys this week suggest that lending to small and medium-sized businesses has not improved much this year and that bank borrowing remains difficult. The Institute of Directors maintains that one company in three applying for loans in the first half was turned down. Meanwhile, British Bankers Association data show lending was broadly flat in April. Yet, try as they might, banks are struggling to lend more as borrowers repay debt - or are not creditworthy in the first place. A large chunk of overall finance to companies has simply disappeared. Take the 74p in every pound of business lending that Stephen Hester. Royal Bank of Scotland chief executive. says went into commercial property in the final years of the credit boom. Nor are UK banks slacking. Part state-owned Lloyds Banking Group approves 80 per cent of applications from small and medium-sized businesses; up to March, more than a third of its net business lending was to small companies. RBSs small business loan approval rate is 85 per cent. Nor should the cost of borrowing be an obstacle: lower interest rates mean that companies are paying a lower all-in cost. But compelling banks with high impairments and capital costs to lend more without compromising creditworthiness criteria is folly. Encouragingly, the coalition governments rhetoric has softened since the election; it is now open to non-bank financing alternatives. With appropriate tax breaks or government risk-sharing, alternative sources of risk capital, such as life assurers, private equity and venture capital, might be prepared to pool resources in an enterprise finance vehicle. Banks might be tempted too. Its worth a try.