Member News
25th October 2011
Alex Jackman, senior policy adviser at the Forum of Private Business looks at whether the initiatives introduced to encourage banks to lend to small businesses are working.
Just over a year ago, in response to increasing criticism from government and business, the five major UK banks, under the co-ordination of the British Bankers Association (BBA), created the Business Finance Taskforce. The Taskforce had one simple aim, to detail how banks could repair their relationship with small businesses, which had suffered enormously since 2008, as credit either dried up or got increasingly more expensive.
The Taskforce produced 18 recommendations, some of which are immensely useful. In July, the BBA launched the Mentorsme [http://www.mentorsme.co.uk/] website, a portal that aspires to produce 40,000 mentors businesses can access for support in any aspect of their work, from accessing finance (the BBA has co-ordinated 400 banking mentors) to employment and tax issues.
A new appeals process has been put in place for those turned down for finance, ensuring more senior managers take a second look at applications. Of the 800 or so appeals made so far, around 40 per cent have seen a change in decision. More importantly, this appeals process should help to identify areas where business owners can improve their finance readiness skills, a big area for forthcoming government work.
Among six proposals to provide better information to business, a series of regional outreach events are being held across the country, with key stakeholders attending, debating and building relationships at a local level. Complimenting this is an impartial, comprehensive survey of business lending which is helping to identify the problem of lack of demand for finance among businesses. To a large extent it echoes issues already emerging from other surveys, but its size and source ensure this is a useful new addition to a crowded research market.
Other recommendations are more niche. A new £2.5 billion business growth fund will make equity investments but only into qualifying businesses that are projecting high growth. Whilst it hits a gap in the market it is of initial benefit to just a handful of businesses. For our members – small employers – a micro-specific lending code has set out what should be expected from banks, although a further commitment to signpost them to alternative sources of finance remains patchy.
So, no shortage of initiatives, but are they working? Well, if success is determined by increased business demand for finance then the answer is categorically no. Of course, the economy plays a large part here. At the start of this year, two thirds of our members were focused on consolidation or survival but since then the economy has only worsened and inflation is causing them all manner of difficulties. Unfortunately, approaching banks when your cash flow is low is the worst time of all to try and get finance.
However, we believe there are further, structural measures that banks could take to stimulate demand. Giving local managers a looser hand in supplying loans to businesses, ensuring the local branch structure is maintained for businesses that need counter services and welcoming new banks to the market are all necessary to encourage businesses back. Furthermore, there needs to be a significant push towards advertising legitimate alternative sources of non-bank finance. Groups such as Funding Circle and Zoopla offer innovative peer-to-peer lending services that cut out the banks altogether. This is cheaper capital and the government needs to vocally back it.
So, whilst we welcome the work the BBA is doing with the taskforce, we do feel there are wider issues that need to be tackled. And if the banks do fall short of their Project Merlin targets next year, the government may yet force them to address them.
Article Comments
Lending to small business is NOT working.We are a 3 year old printing business who in the last year have relocated, taken on new staff and an apprentice, Invested in our print capacity on paper and wide format.Due to growth and expansion I had a two week window where cash flow would be tight. I spoke to my business manager at Net West bank for a 5k loan for 2 weeks to tie me over while we waited for an invoice to be paid.They wanted an arrangement fee of £865. And who's supposed to be helping who out.When I expresses my disgust at this offer I was told to look at three options.Borrow from a relative.Start factoring invoicestake on a business partner.Hardly a bank helping small businesses. Needless to say we didn't take them up on their offer and it will be the last time I borrow from Nat West.Are they the worst of a bad bunch, I doubt it. QE2 may help the banks in the short term however it will do nothing unless more rigid control about where the banks have to lend and at what rates. I.e small businesses who employ local people.I would welcome an independent body to manage such a fund. Focused on growth for all and not profits for shareholders, shored up by the taxpayer.
Adam Triggs
25th Oct 2011 at 9:44 am
Have your say...
Please enter your comments below.