Terry Murden: Ideal opportunity to reform business lending
THE arguments over lending just won’t go away and now the Federation of Small Businesses (FSB) is cranking up the pressure in a new report that calls for a radical shift in the relationship between banks and their customers and for the government to encourage other sources of finance.
The “Big Five” banks insist they have met their lending obligations under the Project Merlin agreement with ministers, and all but Royal Bank of Scotland met their targets for small firms.
But it has not been enough to satisfy the FSB, which claims that when finance is offered the repayment terms are often too challenging and unfavourable. In a new report, Alt+ Finance: small firms and access to finance, the FSB calls on Westminster to promote non-bank finance and adopt practices used in other countries that it says are better at stimulating local economies.
The FSB claims that between 2007 and 2010 there was a 24 per cent fall in the number of successful loan applications for small businesses in the UK, compared with only a 9 per cent decrease in Germany. It says a US system of government-backed loans for small businesses has been a key plank in its economic recovery plan.
The FSB broadly supports the recommendations of the Independent Commission on Banking (ICB), especially on widening competition, but is concerned at how long it will take to push through structural reforms. Businesses simply do not have time to wait and want immediate solutions, including new ways of financing their needs.
The search for alternative sources of funding has been on since the 2008 crash questioned the wisdom of relying on banks and debt. The venture capitalists are selective in the sectors and companies they target and usually take equity stakes. Asset finance, lending against a security, is still largely a banking process. Other sources include credit unions, business angels, the newly-fashionable “crowd funding”, where individuals pull together to raise money, and that old favourite, friends and family.
In Scotland, businesses have regularly warned about the stifling effect of the monopoly enjoyed by the big banks, largely a carve up among RBS, Lloyds/Bank of Scotland and Clydesdale. It has been that way for a generation or more. While there are some signs of this stranglehold being weakened – HSBC this week revealed that it had broken through the £1 billion lending barrier in Scotland – it continues to dominate and to push non-bank providers into minor roles.
The government will argue that it has taken steps to broaden the provision of finance through initiatives such as the Business Growth Fund and by the imminent launch of the Green Investment Bank. But these too will operate at the periphery.
The FSB says its intention is not to “bank bash” or demand that the banks are broken up, but it does share the ICB’s view that the UK banking sector is too concentrated with high barriers to entry.
In that regard, it admires the banking sectors in Germany and the US, whose networks of local banks are proving effective in stimulating local economies. It is no surprise, therefore, that the FSB wants the UK banks to devolve decision making to their local areas.
This report cannot be faulted for ambition. But to achieve its aims would require a cultural shift in the UK financial sector and government reform of the banks far more radical than that proposed by the ICB.
That said, the reconstruction of the part-nationalised banks and an obvious appetite for change present an opportunity to make a start.
Tesco feels the pinch as consumers shop around
The “two nations” phenomenon continues in the supermarket sector as shoppers opt for either the top end stores or the discounters.
Tesco’s crown is continuing to slip, down to a level last seen in May 2005, while Waitrose surges to an all-time high. Aldi, Lidl and Iceland are showing big gains.
The steady erosion of customer loyalty is a concern for Tesco, which is trying a fourth round of price cutting following its first profits warning in 20 years.
It is also investing £300 million to upgrade its stores, which customers describe as “charmless” compared with its rivals.
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Thursday 20 June 2013
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