Government’s small business finance plans a ‘welcome next step’

Government’s small business finance plans a ‘welcome next step’

London - The Forum of Private (FPB) is calling on the banks to increase lending to business customers without delay, following the Government’s announcement of a scheme to free up funding for small firms. The Secretary of State for Business, Enterprise and Regulatory Reform (BERR), Peter Mandelson, has unveiled a package of measures to ‘address the cash flow, credit and investment needs of businesses’ by securing bank lending in order to reduce perceived risk. The FPB believes that the measures must form part of a broader economic stimulus in order to protect more small businesses and boost the UK’s faltering economy.

"This package is certainly welcome and is likely to address some of the credit restrictions that our members are facing," said the FPB’s Chief Executive, Phil Orford. "However, it must be followed up by longer-term measures to support small businesses and stimulate the economy, including tax cuts and similar strategies to boost struggling sectors such as the housing and automotive industries."

Orford added: "With the Government underwriting bank lending to this level, more businesses considered to be of higher risk will still be able to secure much-needed finance if they can prove they are viable concerns, but it is important to note that many vulnerable small firms will continue to face difficulties when applying for loans and overdrafts in the coming months. This package is a welcome step, but only the next step in a longer process of freeing up credit and stimulating the economy."

The Government’s measures include:

-A £10bn Working Capital Scheme, securing up to £20bn of short-term bank lending to companies with a turnover of up to £500m

- An Enterprise Finance Guarantee Scheme, securing up to £1.3bn of additional bank loans to small firms with a turnover of up to £25m.

-A £75m Capital for Enterprise Fund (£50m from Government augmented by £25m from the banks) to invest in small businesses which need equity.

In a statement, Lord Mandelson said: "UK companies are the lifeblood of the economy and it is crucial that Government acts now to provide real help to support them through the downturn and see them emerge stronger on the other side.

"We know that some companies are struggling to secure the finance they need, not because of any failure in their business but due to the tougher credit conditions. That is why we have designed a package of measures addressing different forms of credit and providing real help for businesses."
In the latest quarterly Referendum survey, more than 6,000 of the FPB’s members were asked about their relationships with their banks and their difficulties in accessing finance. Almost half of respondents seeking finance from UK lenders in quarter four of 2008 were either completely (20%) or partially (27%) rejected.

FPB adviser on banking, David Cavell, said that the package had come at a crucial time, when the cash flow of small businesses is increasingly threatened by bigger companies paying them later. "An additional source of funding is, of course, most welcome. We will continue to watch carefully to ensure both the efficiency and the adequacy of the schemes meet the needs of our members."