Time to ditch high street banks?
Disappointed entrepreneur William Berry on why he feels let down by the big banks in 2013 and how the government’s Business Bank offers salvation
The government keeps talking about putting small businesses at the heart of the economic recovery so why does access to funding still remain so difficult?
To prove its commitment to lending to small businesses the government put its weight and £80bn behind the Funding for Lending Scheme (FLS).
The scheme made £80bn of taxpayers’ money available to lenders to loan out as mortgages and business loans, with the added benefit that the more money the banks and building societies loaned out, the cheaper the rate of interest they paid to the government.
What we saw was mortgage rates plummet to historic lows and the FLS branded a success but lending to small businesses continued to remain limited. The latest move is to scale back FLS to mortgage lending but carry on lending at preferential rates to small businesses. However, the damage has already been done.
Figures from the Bank of England show that net lending to small and medium-sized enterprises (SMEs) had fallen into negative territory.
The Bank noted that SMEs have a harder time accessing capital than big businesses and are more dependent on banks to fund their operations. It said: “Gross lending in the three months to October was £1.5bn higher than the same period a year ago, but repayments have also risen resulting in negative net lending.”
The Federation of Small Businesses has conceded that FLS has reduced the cost of lending for SMEs but it hasn’t, unfortunately, made accessing funding easier.
So should small businesses ditch the idea of borrowing from established names and look to the government’s Business Bank. You could be forgiven for thinking the idea had been side-lined, so little was said about it, but it has been gaining traction as business secretary Vince Cable has been given an extra £250m to fund the project, not to mention a shiny new headquarters in Sheffield.
Cable has the optimistic target of loaning £10bn to small companies, although it won’t lend the money directly to businesses it will use a network of lenders, including peer-to-peer lenders, to distribute the money. It may seem a lot for a bank that hasn’t even got off the ground yet, but the right sentiment is propelling it.
Love or loathe the business secretary, he does understand the importance of small businesses to the UK economy, as contributors of taxes and jobs, innovators and as upholders of Britain’s standing as a great entrepreneurial nation.
It could be said that the Business Bank is something positive that has risen out of the ashes of the recession, a new way to help fund Britain’s businesses is not be sniffed at. However, it is also a damning indictment of the poor jobs our existing banks are doing for SMEs.
It comes to something when taxpayers, many of them business owners, are bailing out banks but those banks are refusing to give back when those people need lending to pay wages, to keep production lines going and expand and contribute more to the economy.
It is a double standard; the banks are happy to take the money when it rescues them, happy to make use of initiative like FLS to access money cheaper than they could on the money markets, but unhappy to help those who just want to get on with their ventures.
The Business Bank is long overdue, and when our big high street names show just how profitable believing in British entrepreneurs can be, I’m sure they will come crawling back offering SMEs funding. But the SMEs will think twice before taking them back.
William Berry is a serial entrepreneur and in 2006 was named a Young Gun by Growing Business. He is the founder-director of accommodationforstudents.com, and Vincentbond.com. William is also CEO of the new video start up p6.com, based in California.