Banks called to lend to small businesses as part of war on recession

Mandelson calls on banks to make lending available to UK SMEs as small business support measures become a focus in the war on recession.

By News Desk
23rd October 2008 at 17:26

mandelson calls for banks to lend to SMEsLord Mandelson has today called on the big high street banks to free up lending to Britain’s hard pressed small businesses and announced a forum to bring both sides together to thrash out details.

UK SMEs are now clearly suffering the double whammy of a severe shortage of available lending combined with the impact of the ‘real’ world economy heading into recession.

The irony is that the last time anyone can recollect the big banks making a loss was during the 1980s when unwise lending to small businesses was primarily to blame.

With a new found lending conservatism it is perhaps unsurprising that the British Bankers Association (BBA) today greeted Mandelson’s exhortations with caution.

BBA chief executive Angela Knight was quoted by Bloomberg as saying:

We have to be clear that as talk turns to recession it seems inevitable that some businesses will not survive, even with the best assistance that banks, government and voluntary agencies can give them.

A BBA spokesperson later said to me that ‘you can’t pretend the world is in the same place it was 12 months ago’ and as a result banks would be more cautious in their lending to SMEs.

This sudden lending prudishness by the banking industry is at once a good thing, but also counter to the spirit of moves to save normally viable businesses from abnormal times.

Anything that can be done right now to make recession for Britain’s small businesses shallow and short, rather than long and deep, is going to benefit us all, including the newly part-nationalised banks.

At a Northern Regeneration Renewal Summit in Manchester today, Business Secretary Mandelson outlined how important he believes the Regional Development Agencies (RDAs) will be in delivering the ‘Solutions for Business’ support package announced earlier.  Mandelson said the RDAs’ mandate is clear:

to ensure that every hardworking business, in every region of the country has the necessary advice and support to help them not just to survive but also to succeed in the difficult times ahead.

What’s not clear in detail is how the RDAs will practically role out additional support measures.  In addition, you might also argue that the mandate for RDAs hasn’t changed at all.

Further details have emerged which clearly mark Business Link as the delivery point for various ‘Solutions for Business’ products which are to be simplified from 3,000 products/services down to 100.  This attempts to counter criticism about the complexity of delivery of support to SMEs.

Both the CBI and the Federation of Small Businesses (FSB) have broadly welcomed recent government measures for SMEs.

Nevertheless a number of features of the the new package involve initiatives like Train to Gain, and Business Link Health Checks which were all launched some while ago, as was the commitment to radically simplify the system.

There is also a sense that the value of government support offered to Britain’s small businesses may be inadequate.

As a result, the FSB yesterday set out a blueprint for a £1billion ‘Small Business Survival Fund‘, a figure which dwarves most estimates of the government’s new spending on an SME support package.

[Photo credit: Flickr World Economic Forum]

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  1. Martyn Shiner says:

    If the CBI and FSB welcome support from the RDAs and Business Link they are more deranged than Mandy.

    Better to scrap BERR, RDA, Business Links, Manufacturing advisory service, sack all the civil servants and other hangers-on and use the savings to cut employers NI and corp tax for any business defined as small. Then give 100% first year allowances on plant.

    The current package is just like pissing in the wind.

  2. Martyn Shiner says:

    Oh and if you follow him on twitter you’ll know @positivechurn thinks like I do, which is only right and proper as he is my business partner!.

  3. SmallBizPod says:

    Hi Martyn, agreed radical times require radical responses. But scrapping BERR, RDA, BL etc would probably leave as many people on the dole as all the small business employees who’ll end up there otherwise. Government needs slimming down. But it’ll be interesting to see how far public spending increases fill gaps in certain sectors left behind by private sector cuts.

  4. Clive Birnie says:

    To add to my colleague’s comments above. I have a deep rooted scepticism about how much real help for a SME suddenly finding itself in choppy waters the vague measures being proposed will deliver.

    “Train to Gain, and Business Link Health Checks”: all very well but most of these types of “assistance” schemes are “match funded” so you can receive (allegedly – we have yet to see a penny for some we have participated in) an amount equal to your investment in e.g. a productivity improving training programme.

    So 2 things utterly foolhardy here. 1. if a business in struggling it just won’t have the cash 2. Productivity changing measures can take an awful long time to make a meaningful impact on cash flow and cash flow is ALWAYS the problem!

    Not to mention the glacial pace at which match funding is paid out and the fact that the agencies on the approved list can very often be more expensive than not approved smaller options. We had one instance where hiring a smaller non approved co delivered the same training for less than 50% of the approved provider.

    Small businesses need real practical help and I feel that the problem with the Govt is that there is precious little real practical business experience around in the professional political class. Good stuff from the FSB, however. Whether it will get any attention is another matter.

  5. Martyn Shiner says:

    Alex,

    >>>But scrapping BERR, RDA, BL etc would probably leave as many people on the dole as all the small business employees who’ll end up there otherwise<<
    So letting hard working employees of small companies who actually CREATE wealth get thrown on the dole to save the jobs of the civil servant spongers and their hangers-on is OK, is it? Oh dear, what a wrong-headed argument that is.

    I tell you, the bloated public sector is a monster. Its out of control. The sooner we kill the beast for good, the better IMHO.

  6. SmallBizPod says:

    Poorly argued point perhaps and I’d never favour bureaucratic employment over small business employment. But like it or not the public sector accounts for 20% of UK employment. Cutting the public sector workforce right now when the private sector is by necessity having to shed jobs is not going to create jobs. It’s going to create unemployment, lower spending, deepen recession etc.
    We’re in agreement that the public sector should be slimmed down, but SMEs need more help right now. Making more people unemployed isn’t the way to do it.

  7. Martyn Shiner says:

    But cutting unnecessary public spending AND cutting taxes on individuals and businesses would boost the economy in the right way rather than pumping up inflation as public spending tends to do. Oh and cutting interest rates would help too.

    The yanks have got SO much wrong in past except… they saw the recession coming and have cut interest rates deeply and also given tax cuts, thus, according to most commentators, their recession will be shallower and shorter than ours.

    Unless Obama screws things up.

  8. Martyn Shiner says:

    And several leading economists seem to agree with me

    http://www.telegraph.co.uk/opinion/main.jhtml?xml=/opinion/2008/10/26/nosplit/dt2601.xml

    😉

  9. SmallBizPod says:

    They do indeed! Funnily enough I read the same piece over the weekend and thought of you.
    All this reminds me of the Shiner/Birnie mantra of not being able to spend/grow your way out of a hole. Heading back into history for ‘Great Depression’ FDR-like solutions is a massive gamble.

  10. […] Banks called to lend to small businesses as part of war on recession […]

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