Bibby Financial Services has claimed that the government’s approach to supporting small businesses has been failing.
Edward Winterton, executive director at Bibby Financial Services, believes this is the case because the government has superseded the National Loan Guarantee Scheme with its Funding for Lending initiative.
“Over the past few years we have seen a raft of different schemes and initiatives introduced to address a shortfall in lending to businesses, but worryingly net bank lending to SMEs has fallen in every month of this government,” said Winterton.
“Even with the introduction of ‘Funding for Lending’, the government continues to overlook the recommendations laid out in the recent Breedon Report which called for a greater focus on alternative funding options and a lesser reliance on bank funding.
“Their insistence to channel funding streams through the banks in an attempt to support businesses is failing to address the core issue – what is being done to support firms which have been and are being overlooked by the banks.
“Questions must be asked as to whether an increase in the availability of low-cost funds will do anything to benefit those businesses which are classified by traditional lenders as ‘high-risk’. The Bank of England must closely monitor not only the levels of lending, but where the money is going to ensure this scheme does not become another of the government’s futile funding projects.”
Winterton said: “On top of this, the government needs to focus on building business confidence and encouraging more firms to invest in growth, be it with the support from the banks or from alternative funding providers.”
The problem is that any of the initiatives introduced by the Govt have been enforced by traditional high st lenders. Lenders can apply discounts or initiatives introduced by the Govt, however, lenders still use their ever stricter criteria for underwriting. So business has to first be able to jump through the tight criteria for all borrowers before any initiatives are applied. It simply does not work. Examples of what lenders are doing;
– Stress testing investments at extreme highs near 6-8 % over the loan term.
– Use additional Cover ratio's for example 190% on Residential Investment (as one of the largest lenders do!!).
This along with the fact that they have increased margins due to "cost of funds" has meant that any Govt initiative so far has not been succesfully applied. Purely as the clients do not pass the tight lending criteria which the lenders implement and have to be pass before "they" decide who they lend to. More expensive funding options are used and hence the increase in Invoice/Cashflow Finance, Asset Refinance, 2nd Charge Secured lending and Bridging Finance.
Mobeen Chishti – Total Money Management