CFI: Commercial
Long term help for struggling SMEs is needed by
Rob Lankey, managing director, Commercial Mortgages, Aldermore
there is an awful lot of lip- service paid to small busi- nesses by those in govern- ment, but you have to ask yourself whether politicians’ well-intentioned words will actually make a difference or if they are simply so much window dressing? there is without doubt a realisation, as the economy teeters yet again on the brink of recession, that small busi- nesses have the power to make the difference. ministers have therefore been quick to make pledges to provide as much support as possible to small business owners.
Credit easing at the recent conservative Party conference, chancellor of the exchequer george os- borne said: “everyone knows Britain’s small firms are struggling to get credit and banks are weak. So as part of my determination to get the economy moving i have set the treasury to work on ways to inject money directly into parts of the economy that need it such as small busi- nesses. it’s known as credit easing. it’s another form of monetary activism. it’s similar to the national Loan guaran- tee Scheme we talked about in opposition. it could help prevent another credit crunch, provide a real boost to British business and over time help solve that age old problem in Britain: not enough long-term investment
in small business and enter- prise.” the way this new scheme
will work is that small busi- ness loans will be packaged together and guaranteed by the government. the pack- aged securities will then be sold in the bond markets. it’s basically a way for the government to make more capital available to small busi- nesses by side-stepping the big banks. it’s hoped that as a result, the rates charged on loans will fall significantly, re- flecting the current very low Bank base rate.
Lukewarm Sounds good, but will it work? it’s too early to say because the scheme’s details have not yet been published, but george osborne’s com- parison with the Loan guar- antee Scheme does not fill me with optimism. the en- terprise Finance guarantee Scheme, which replaced the Small Firms Loan guarantee Scheme, has not been a run- away success. i reported in the February
issue of Mortgage Introducer about the decline in lend- ing under the eFg scheme, which was down from £217m in Q3 2009 to £141m in Q3 2010 and i pointed out that many of the regions that need funding support the most, such as northern ireland and the north east, have felt very little benefit. the scheme cre- ates the impression of sup- port, but the results demon- strate that it’s making very little difference.
QE2 So worried is the Bank of england about the state of the
58 mortgage introducer NOVEMBER 2011
“Will politicians’ well-intentioned words actually make a difference or is it simply window dressing?”
economy, that it has decided to once again embark on a course of quantitative eas- ing. this involves the Bank of england buying £75bn of gilts from banks, insurance com- panies and other firms over the coming months. the idea is that these organisations will then spend or invest the ad- ditional capital in assets such as equities, bonds and com- modities which in turn will boost economic growth. the theory also goes that money injected into the banking sys- tem will find its way through to consumers and businesses, which will eventually stimu- late economic growth. But does quantitative eas-
ing work? Some say that it simply fuels inflation and point out that banks don’t have to lend the capital they acquire under the scheme. despite pledges made under the terms of Project merlin, most large banks have dem- onstrated that they’re more concerned about rebuild- ing their balance sheets and recapitalising, rather than pushing money down the line to help small businesses. al- though the merlin banks have just about hit their targets, they are struggling to lend enough to very small busi- nesses. out of the £190bn pledged under the terms of Project merlin, £119bn will go to big businesses and by- pass Smes altogether.
Small firms struggling and yet the uK’s 4.8m small and medium sized firms em- ploy 22.8m people and ac- count for 59.8% of the pri- vate sector workforce. Small firms also generate 49% of the uK turnover and 64% of all commercial innovations. it’s those micro businesses seeking business loans which often fall below the minimum threshold imposed by govern- ment schemes that struggle the most to get funding sup- port. So is there anything that
the government can do which will make a real difference, or is it simply a case of having to batten down the hatches and let the recession run its course?
Think long-term of course there is a lot that government can do that will make a difference. However, in order to make real progress ministers need to be prepared to ditch headline grabbing short-term schemes in favour of longer-term initiatives that will give business owners the confidence to invest in new premises, plant and equip- ment to support their future growth. at aldermore, we speak
on a daily basis to business owners and hear first-hand about the frustrations they are encountering getting sup- port from either government or the big banks. Sometimes, the best solutions are those which are kept simple and which are well targeted. Will the chancellor’s new credit easing initiative break the mold and genuinely help small businesses? only time will tell.
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