Small and medium-sized businesses will be the engine of Britain’s long-delayed economic recovery. With the public sector hammered by cuts, and the banking and finance sector in retreat, we need to give more support to UK’s small businesses.
Yet the banks seem remarkably unwilling to give smaller firms the lifeblood of credit. The Government’s Project Merlin, launched in agreement with major banks – was supposed to deal with this.
Judging by the latest figures, however, Merlin is not delivering the goods. Gross lending to small and medium-sized companies actually fell by £1.7bn in the third quarter of this year. With the base rate now 0.5% HSBC has just quoted me 9.9% for a business loan – and they want a personal guarantee on top!
Analysts at Citigroup agree, LINK:http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8889611/Project-Merlin-fails-small-business-lending-test.html saying Merlin has failed to achieve any "genuine overall improvement in the availability and cost of credit for small firms."
So what’s going on here? Ask a banker off the record and he’ll most likely tell you that offering credit to small businesses is risky, hard work and the pay-offs aren’t always that great. Derivatives and other exotic financial products offer bigger short-term profits.
Clearly, more needs to be done if we’re going to get the British economy back on a path of sustainable growth. Mervyn King has called for the banks to be persuaded to lend more with new fiscal incentives. LINK: http://www.guardian.co.uk/business/2011/oct/25/mervyn-king-bank-incentives-lend But should such “bribery” really be necessary? Even the failed banks are still handing out large bonuses to their staff which collectively amount to billions of pounds.
At present, the government seems obsessed with the problems of the big beasts of the banking and finance world. It’s neglecting the needs of the small business sector, where people are working incredibly hard and being innovative.
There needs to be more competition between the banks and more lines of credit available to small businesses. Let’s hope the Chancellor’s Autumn Statement, due at the end of this month, will offer some fresh thinking.
Posted by Simon Broomer Managing Director & Founder @ CareerBalance Ltd
