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:
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.