Is the ‘Small Business Bank’ good financial news for small businesses?
At last, it sounds like there is some positive financial news for small businesses as recently the government has announced plans of a “small business bank”. This comes at a time when latest official statistics show that in the last year one third of businesses that applied for a loan were rejected.
This is all about finding a new way to lend money to businesses and the government taking action by offering the funding that the private sector is so unwilling to offer. However, how this initiative will actually work is still vague, which makes me slightly doubtful as to how quickly the funding will be available.
The plan is backed by Vince Cable (Business Secretary, Lib Dem) and George Osborne (Chancellor, Conservative) however in true political style they are seemingly at loggerheads as to how the funding will be delivered. Mr. Osborne first announced the idea of the ‘small business bank’ a couple of weeks ago, when he appeared in the Andrew Marr show on the BBC. He indicated that it would not take the form of a traditional bank and therefore not be in competition with such institutions.
For Mr. Osborne, it is a question of making existing schemes more focused on funding small-businesses, but for Mr. cable, this should be a direct lending scheme to small businesses and therefore a new scheme. He is keen to persuade the government to fully nationalise the Royal Bank of Scotland, and use this position as vehicle to lend directly to small businesses.
The state already owns 82% of the Royal Bank of Scotland and the Chancellor is particularly against the idea of using the RBS, given his plans to sell the state-owned share when the right opportunity presents itself. In addition, the Business Secretary has this week mentioned the alternative possibility of ‘challenger banks’ (alternative banks to the usual big 4) to deliver this scheme.
These include British branches of the Swedish bank Handelsbanken, Aldermore and the Co-operative. But again how this will work is still to be agreed, as is whether or not this will be supported by state money. Mr Cable, has also talked about learning some lessons from our European neighbours, such as the Germans who already have a scheme in place, with the Kreditanstalt für Wiederaufbau (KfW), which offers business loans for development purposes.
We could also learn other lessons from the German approach and find ways of working within the confines of our EU agreement in order to protect domestic companies. The small business bank is aimed at small (and medium-sized) businesses with the potential to grow, particularly those in industries where growth is rapid. With this is mind, there has already been mention of sectors such as advanced manufacturing, the digital economy, and renewable energy supply.
Whilst this is understandable, I hope that this initiative is not going to be limited to such sectors. Small businesses across all sectors are money-starved at the moment and the ability to borrow is not only about growth but also about survival. So come on Messieurs Osborne and Cable, let’s get this scoped and agreed quickly.
Turn your talk into action please.