TalkingPoint : Lending to small businesses

written by TalkingPoint on 14/10/2011

by Mr Brian Binley, MP for Northampton South and Chairman of the All-Party Parliamentary Small Business Group

Talk of the importance of lending to small business is one of the few things not in short supply, and is widely acknowledged as one of the priorities in creating jobs, wealth and prosperity. Frustratingly, the debate has got mired in an unhealthy clash of statistics: what matters is something that entrepreneurs can feel, not what economists can measure.

Small businesses exist to trade and generate profits; they do not have energy or interest in getting caught up in policy debates. They want government to get off their backs and, if anything at all, help in creating a climate where consumers can consume their products with minimum fuss. They don’t want to have to refer to complicated agreements; they want to make their businesses successful. Many entrepreneurs are frustrated that they cannot access the capital that they need. Project Merlin was supposed to lead to increased lending, and whilst there has been some progress, it is small businesses that have seen the smallest increase to date.

Government promises to use ‘all tools available’ somewhat miss the point: businesses would rather operate within a pro-business banking culture which understands their needs than one driven by regulation with reluctant banks looking at the letter of the law before doing anything. Frankly, the Government would be better putting its energies helping to stimulate private sector demand so that businesses can find the customers with confidence to buy. And banks should be hungry to embrace this opportunity to support wealth creation in the stagnant economic climate in which we live.

It is no surprise that, following the crash, banks have been cautious. Yet many of the problems facing small businesses in debt markets were acknowledged well before the current calamity, such as the Graham Review in 2004. The recent Vickers’ report provides a window to 2019 before regulations are imposed so that banks can prove that they can combine a sensible approach to risk with making cash available to the small business community.

Those leading attacks on the banking industry are quick to argue that banks were selfish and irresponsible, playing ‘fast and loose’ whilst enjoying the guarantee of government cash if it all went wrong. The best response is to see a genuine positive banking culture emerge which helps small businesses. But do banks have the appetite to step up to the plate?

British Bankers' Association replies. (17 October 2011)

Thank you for your guest blog, and for offering an alternative view.

You challenge the banks to step up to the plate to create a genuine positive banking culture which helps small businesses. That is exactly what we have been working to achieve since we launched our Better Business Finance initiative one year ago. The campaign to improve the relationship between SMEs and the UK’s high street banks has been working through the past year to ensure better access to finance, to educate and support SMEs and to improve understanding of the needs of businesses. At its launch on 13 October 2010 the campaign made 17 commitments to businesses seeking finance through its report ‘Supporting UK Business’.

Since then we have crossed the country with a series of roadshows organised with local chambers of commerce, bringing local businesses together with bank executives to talk about their financing needs and the outlook for the future. We have established an independently-monitored appeals process to give businesses greater confidence that their applications will be scrutinised, and scrutinised again if they are initially unsuccessful. We have built a free national business mentoring scheme, putting businesses in touch with experienced professionals who can guide their company to the next stage in their development. We are working with existing mentoring networks, and training many more. We have launched a £2.5bn Business Growth Fund to invest in growth businesses in the equity gap. Recently it made its first investment – £4.2m to Southampton-based company Benefex. And we have agreed and published new principles for lending, which set out the criteria for a successful credit application and therefore increase the chances of companies getting a "yes" first time.

We can do more, and we need to reach more businesses. We know these initiatives have made a great difference to many firms, and could help many more.We are committed to building on what we have learned and continuing to ensure viable businesses have access to the support they need. We hope we can count on your help.