As Britain’s economy struggles to emerge from recession, it appears that the government is investing its hopes in SMEs leading the way to recovery with aspects of the recent budget reflecting this.
However, Business Secretary Vince Cable has now announced that further measures are required to nurture and support small start-ups, and has set out a plan to show how this assistance should be distributed.
Firstly, three lenders – Market Invoice, URIKA and Beechbrook Capital – will gain access to an initial sum of £30 million in Government funds in order to channel financial aid to small businesses.
The money will be provided by the small businesses subsidiary of the Business Finance Partnership, and is merely a fraction of the £100 million the Government has pledged to help small businesses gain access to finance through more diverse sources than the traditional banking sector.
However, the Department for Business, Innovation and Skills hopes that private investors into the scheme will help raise the kitty available for SMEs to dip into to more than £70 million.
According to Mr Cable, financing projects such as this are essential for the growth of small UK businesses.
He says; “A lack of access to finance is still choking off too many small businesses, preventing them from growing, taking on new staff or investing in new equipment.”
However, this collaboration with the private sector is only one aspect of a much wider plan set in motion by the Business Secretary, which has more commonly become known as the Business Bank. Mr Cable hopes that this initiative will encourage larger banking chains and private investors to lend to small businesses – although the state backed, taxpayer funded “bank” will not actually lend directly to SMEs itself.
On top of a £1 billion seed capital, the Business Bank will gain £2.9 billion from the pooling of Government schemes to use in its battle to kick-start lending in earnest in the UK once again.
Rather than gaining direct financial aid from the Business Bank, SMEs can appeal for advice regarding facilities and schemes which will help them get back on the right foot. Furthermore, the Government scheme will provide cheap wholesale finance for those falling outside the category of “traditional lending”, thus providing the traditional banking sector with an incentive to begin lending again.
This could certainly radicalise the field of business lending, as 85 per cent of all business loans are handled by the “big four” banking groups – Barclays, HSBC, Lloyds Banking Group and The Royal Bank of Scotland Group. However, should smaller building societies or independent lenders gain access to higher levels of lending capital, the big four may find themselves having to offer SMEs a little more in order to keep their custom.
Mr Cable expects the business bank to begin investing in September, building up speed until the second half of 2014 when the Government scheme will be working at full capacity. It will also be constantly appealing for private backers to invest alongside the Government allowing for greater access to funds for lenders and, thereby, SMEs.
Chairman of the Federation of Small Businesses, John Walker, expressed his joy that the Business Bank “will have a clear remit around simplification and competition.”
He continued; “For too long, the SME lending market has been dominated by a few big players and businesses are struggling to access finance to grow.
“Competition should come from more banks on the high street as well as alternative providers.”
Do you think the Business Bank will succeed in creating more competition in the business lending sector, or will the big four simply offer attractive incentives designed to draw consumers away from private lenders? Should the Business Bank continue the £300 million initial lending scheme alongside backing lenders, or should the focus remain on creating healthy competition between lenders?
Previous Post
Bolton Looks to the Future
