Time for Some Education in the Small Business Finance World? Dr Steve Walker Believes That Small Business Managers Need More Knowledge and Understanding of the Various Types of Finance Available
Byline: Dr Steve Walker
It seems to me that never in the world of small business finance has so much been said by so many with so little result.
Each group of 'interested parties' apparently attempting to improve the country's economy is seeing the world from its own perspective and doesn't appear to fully understand any of the others. Many do seem to agree that growth will be achieved through small businesses.
The politicians and a myriad of commentators say they want the banks to lend more to small businesses. Yet the evidence suggests that they have not only misunderstood how banks work, they have misunderstood what is categorised as a 'small' business.
The banks say they are lending to small businesses, but they have gradually been withdrawing from lending to them for some time - even prior to the credit crunch.The concentration for the banks has been upon lending to medium and large businesses.
Small business owners say they can't access the finance they need. Yet many appear to be unaware of all the options open to them and are turning to personal finance rather than specialist alternative business lenders if their banks say "no", or possibly postponing their investment and growth plan and not even applying to the banks as they anticipate a refusal.
All of which leads me to the conclusion that what is needed as much as anything else to boost the economy is a little education.
One major lesson for the politicians, commentators and small business owners is that the banks will never return to the wider risk taking and insufficient returns that loans to many small businesses provide. Not only are they being asked to keep more cash in reserve to avoid the tax payer having to bail them out again as they did during the credit crunch of 2008, but, put simply, they have shareholders to satisfy and will always need to put profit first.
The banks must begin to admit this freely and seek a partnership solution with alternative providers for the wider good of the economy. This is now in some areas starting to happen with the banks committing to signpost businesses to other sources of finance if they cannot help. Also non bank lending schemes have received recognition and promotion through the recently published Breedon report and the Government's response to it. A step forward, but sadly, much of the initial report has once more concentrated on medium sized businesses, whilst purporting to address small business lending. Progress is therefore slow. The next lesson is that 'small businesses' range in size from micros with less than 10 employees to small businesses with up to 50 employees. Turnover can be still up to pounds 5 million. Quite a spread, with the largest needing different solutions to the smallest. Everyone needs to be clear about which businesses which schemes are designed to support and what impact that might be expected to have on the economy.
Take the latest Government scheme, which has been trumpeted as providing pounds 20 billion to help small businesses. It's called the National Loan Guarantee Scheme but it actually provides cash to the banks at a lower rate than the wholesale market as it is secured by the Government.
This in turn enables the banks to offer loans at a discount of one per cent. …