Cautious response to business bank plans

Plans by a new bank to raise £100 million to lend to cash-starved small businesses have received a lukewarm response from its target customer base.

• Colin Borland: ""Anything that stimulates competition has got to be welcome"

The British Enterprise Bank (BEB) last week said it was planning to open more than 20 specialist branches on business parks throughout the UK, including in Aberdeen, Edinburgh and Glasgow. It intends to target small and medium-sized enterprises (SMEs) which claim they are unable to borrow money from thigh street banks.

But the Federation of Small Businesses (FSB) in Scotland has warned that focusing its proposed branch network on business parks and industrial estates could backfire.

Colin Borland, spokesman for FSB in Scotland, said: "The British Enterprise Bank is absolutely right that there is a gap in the small business lending market, particularly in Scotland.

"Anything that stimulates competition has got to be welcome. But it is a pity that it only plans three Scottish city hubs on industrial parks. That's going to count against the new bank as it will clearly not be the solution for everyone."

One business banking executive said: "BEB's claim that it will hire experienced business managers to run these centres is a good thing. But it can be tough going when you are persuading SMEs to drive out somewhere for advice rather than just pop round the corner to a branch."

BEB is backed by a string of entrepreneurs and financiers, including former Merrill Lynch banker John Shorrocks and is advised by independent financial services consultant Professor Merlin Stone who acknowledged the FSB's concerns.

He said: "A lot of businesses we are targeting are based outside town centres. Also property can be cheaper on business parks. But I would not exclude the idea of an occasional town centre branch in big conurbations."

Two of the biggest lenders to SMEs in Britain - taxpayer-backed Royal Bank of Scotland and Lloyds - have come under fire for failing to offer sufficient support to smaller businesses during the downturn.

The FSB in Scotland has previously warned that SMEs were struggling to secure fair financing deals because the leading players had a "take it or leave it" attitude.

First Minister Alex Salmond this weekend urged the coalition government to take "decisive action" to ensure banks lend money to small businesses.

He made the call to UK Business Secretary Vince Cable in a letter which warned that the lack of lending is having a severe impact on Scottish companies.

"Previous requirements on bank lending have not proved sufficient, and a more targeted and robust approach is required," said Salmond.

"Within this it is vital that such action considers not just the level and affordability of finance, but also the range and scope of products being offered by banks."