SMEs
The state of play in small
business finance
Accessing finance is often
difficult for small and
Campaign groups and politicians are
medium sized firms. Then
encouraging other councils to follow
the banking crisis made Essex County Council’s lead.
things worse. Impact has
taken a look at some of
the specific problems
faced and varied proposals
to resolve things.
A
ccess to finance was an issue for
small businesses before the credit
crunch struck. Applications can
be time consuming, loans costly, and
rejections common. The banking crisis
has exacerbated that problem and so
made the case for a long term solution.
In early 2009, the Federation of Small
Business estimated fewer than a quarter
of applications for small business loans
were accepted. The number rose a little
after that but remained well below a third. communities in its local area with credit Natwest, HBOS and Barclays, as well as
As a result, they suggest that a reliance that that otherwise dried up. Some the Institute of Credit Management.
on conventional banks has been part of campaign groups and politicians are For those seeking credit but struggling
the problem and that more should be encouraging other councils to do likewise. with what should be sound applications,
done to develop alternative financing Small businesses themselves cannot the £1billion Enterprise Finance Guarantee
options for small firms. make those changes happen. But there scheme was launched in January 2009.
In August they argued that the Post are actions they can take to access credit The guarantee was set up by the
Office should become a Post Bank that or free up their own funds. government specifically to help small
would support small business nationwide. First among those options is to businesses. Although the loan still
Alongside that the FSB proposed that discourage clients from paying late. comes from banks and works as normal
business loans and aid to small firms In 2008 as many as a half of all small for the borrower, three quarters of it
could be provided through the Regional businesses were facing late payments for is guaranteed by the state in cases of
Development Agencies. work they had completed. That situation default. This gives banks confidence
Federation of Small Businesses meant that along with borrowing money to that they will get back what they lend by
national chairman, John Wright argued: facilitate new projects, or to expand their significantly reducing their risk.
“Despite government bailouts and interest business, a lot of firms had to borrow money The guarantee allows small companies
rates set at a record low, small firms are to pay wages and bills while they awaited to apply for loans for different purposes. It
still finding it tough to access affordable payment they should already have had. has freed up loans for growing businesses
loans and overdrafts from banks. This is The government acknowledged this that lack conventional security. These
compounded by the fact that much of the problem. It pledged that it would pay its are only awarded for otherwise sound
support provided by the government is contractors at all levels within ten days propositions that might have been
only available through the banks and often of billing. Alongside that came its Prompt declined because of excessive risk
this isn’t replicated at branch level. The Payment Code. This was not a legally aversion among banks since the credit
FSB would like to see more alternative binding document: it served to highlight crunch.
sources of finance provided locally good practice and put pressure on Some firms have converted overdrafts
such as through Regional Development signatories to pay on time. into term loans to free up capacity. Some
Agencies, local councils or post offices.” The Department for Business, have also used it to gain credit to improve
Essex County Council has served as Innovation and Skills encourages all small security on existing loans where banks
an unusual case study with its approach firms to sign up and to press their supply may otherwise call for early repayment.
to tackling the credit crunch. It quickly chains to do likewise. The scheme is The Enterprise Finance Guarantee will
set up the Bank of Essex to support also supported by major banks including operate until March 2011.
February/March 2010 | 21
Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24