Demand for "even more radical" action to help kick-start lending BUSINESS leaders today called for "even more radical" action from government, including the setting up of a dedicated business bank, after the launch of an £80 billion emergency scheme to kick-start lending. The Bank of England's "funding for lending" initiative, first flagged last month, will make low-cost funds available to banks as part of efforts to stimulate growth in the economy. Previous efforts to spur lending to businesses and households have failed to give a clear boost to the economy, but Chancellor George Osborne insisted this latest move would be different. He claimed the initiative would "inject new confidence into our financial system and support the flow of credit to where it is needed in the real economy." The reaction from business groups and economists was broadly positive, with one commentator saying the BoE had "put its money where its mouth is." CBI director-general John Cridland said the scheme should provide a "real incentive" for banks and building societies to step up their lending to businesses and individuals. "It is a positive step towards stabilising funding for lending, particularly given the current market turmoil driven by the eurozone crisis," added Cridland, who as head of the lobby group speaks for some 240,000 businesses. Adam Marshall, director of policy at the British Chambers of Commerce, conceded that "exceptional times call for exceptional measures," and expressed hope that the intervention would "succeed in incentivising lending to viable firms that want to invest and grow." But he cautioned: "The Bank of England and the government must make sure this is not another false dawn in the provision of business finance. As they roll out funding for lending, they should be even more radical and plan for the creation of a bona fide business bank in the medium to long-term. The Federation of Small Businesses in Scotland argued that to be successful the scheme needed to do "more than simply lend extra money at a lower rate." Spokesman Colin Borland said: "Our latest figures suggest that around 40 per cent of our members who approach their bank for finance are rejected. At the same time, nearly 40 per cent of the lending decisions appealed to the Banking Taskforce's appeals process were overturned. This suggests that there remains a problem around to whom high street banks are willing to lend and that is a problem which any stimulus scheme needs to take into account. Under the new scheme, banks are being offered funding at low interest rates over a four-year period - but it will be directly linked to lending performance to encourage them to increase loan availability and reduce rates. The banks will be able to access finance at rates from around 0.75 per cent including fees - far cheaper than the equivalent 1.25 per cent to 2.5 per cent rate in finance markets. Christopher Shaw, head of alternative finance provider Platform Black, said: "After months of handwringing about the lack of lending going on, the Bank of England has put its money where its mouth is. For the economy to start growing in earnest, SMEs need to grow, and to grow they need funds. Currently, those funds simply aren't there. This Bank of England scheme is a worthy step in the right direction, but it's no panacea.