Thursday, 3 January 2013

Starting up

No-one should under-estimate the essential contribution that small businesses make to the economy. More importantly, the growth of some of those small businesses is essential to the UK’s long-term economic viability.

The last Labour government introduced the Enterprise Finance Guarantee scheme, to boost lending to small businesses following the global financial crisis. However, according to the statistics published just before Christmas, lending under the scheme has fallen dramatically from £737,129,000 in 2009/10 to £201,903,000 in 2012/13

This is just part of a much bigger problem as, according to the Bank of England, net lending to businesses has fallen by £13.5 billion over the past year. The use of external finance by small firms has fallen to its lowest level in more than two years. More than a quarter of small business owners have been forced to inject personal finance into their business in the last year against their wishes according to the most recent SME (small and medium enterprise) finance report.

The government has failed to get banks lending to businesses and the government’s abandoned Project Merlin and credit easing schemes made no real difference. Yet, the same government Ministers are letting the banks break the promises they made more than two years ago to do more to help small businesses get access to the finance they need.

The banks promised to make firms, turned down for finance, aware of an independent appeals process and of alternative sources of finance. Yet only 9% of firms who had a loan application rejected said they were made aware of these by their bank, and even fewer were referred to other sources of help and advice – the most recent SME Finance Monitor (the biggest survey of small businesses’ access to finance) found.

Yet, the six banks and building societies that used the Funding for Lending Scheme sucked £1bn out of the economy in the three months to September, with much of the lending appears to be lowering mortgage rates rather than helping small businesses.

We desperately need our high street banks to better serve the needs of our small and medium sized enterprises, but instead they are turning a blind eye. Ministers have failed to help small businesses struggling to access the finance they need to expand.

As we start 2013, there’s an urgent need to review how new business starts can be supported and how small businesses can be helped to grow.