The business secretary, Vince Cable, has just announced plans for a new lending initiative — a state-funded business bank. It sounds promising until you look at the small print and I think there are a couple of reasons to err on the side of caution at this stage:
- It is suggested that it will take another 18 months or so for the scheme to go live. That is clearly too long. If you can wait that long for funding, then you may be okay, otherwise this new scheme will not matter because your business may not be around.
- The definition of “small business” is, again, unclear; is it aimed at businesses wanting to borrow £100,000 or £200,000 (in other words a really small business) or is it aimed at small companies like previous schemes i.e. with turnover of £1m plus (in other words a small company)? Remember both are classified as SMEs but they have totally different requirements. It looks like this new scheme will benefit the latter, whereas it is the former who really need it.
So please excuse the scepticism but my conclusion is that this is just another idea destined for the bin. Let me remind you of project Merlin, the Enterprise Guarantee Scheme, and the previous flagship Funding for Lending scheme. The latter came under scrutiny when some banks admitted that they didn’t even entertain the idea of getting involved.
There are two real problems with lending for small firms.
Firstly there is a combination of unrealistic expectations by many businesses (some still want to borrow on terms which were offered in 2007) with unrealistic conditions by lenders. The facts are also different: business finance is available and our experience proves that sensible finance for sensible proposals can be organised, but it cannot be done as it was in 2007.
Secondly the numbers are down because many successful businesses are actually reducing their borrowings to reduce their dependence on banks — and with all the doom and gloom stories who can blame them!
Henry Ejdelbaum is the managing director of ASC Finance for Business, the network of business consultants with 20 UK offices.