Archive for October, 2009

Running on empty!

October 11, 2009

Funding: entrepreneurs and growth businesses need greater access to credit

 Entrepreneurs and SMEs will be the engine of our economic upturn. Not only are they driven, innovative and resourceful, but they employ the majority of our private sector workforce.  They are truly the lifeblood and future of our economy, so whilst I agree with Peter Jones that ‘easy-credit’ can keep lame as well as sound businesses afloat, there is an urgent need to deliver swift and adequate funding to deserving businesses.  Are Peter Jones’ comments too harsh? Yes, they are. But I am not advocating a return to the ready-credit facilities of recent years. Instead, effective government support and a more traditional and better understood banking service would be good and helpful steps.

A number of new banking initiatives [eg Sandy Chen from Panmure and the ‘Post Bank’] have been mooted recently. These show just how far the banking model of the ‘naughties’ has departed from the concept of a traditional lending institution. Entrepreneurs and SMEs could only benefit from a traditional and stable banking service which focuses, plainly and simply, on taking deposits, and lending to viable businesses. There is no room for CDOs, securitisation or complex derivatives trading in the SME world. A return to simple, old-fashioned banking would help to provide the solid bed-rock to our financial system and, if managed correctly, should also facilitate decent returns for depositors who, indirectly, will be investing in entrepreneurs and growth businesses. A virtuous and sustainable circle.

As to the effectiveness of other support, government initiatives are not working well either. All the evidence suggests that SMEs are still struggling to get funding. The much acclaimed Enterprise Finance Guarantee scheme to help viable businesses is far from the top of the agenda for most banks and entrepreneurs. Almost nobody seems to qualify for it or understand it. We all need clarity so where’s the red pen? At the macro level, quantitative easing may be helping the banks and powering the stock market, but it is doing little to support our entrepreneurs and their businesses. The lag effect means that more businesses will go bust as the economy comes out of recession, so with increasing unemployment in the private sector giving way to cuts and unemployment in the public sector, something needs to be done.

We welcome Peter Jones’ involvement in the small business sector and share his desire to champion the cause of entrepreneurs and small businesses. Viable businesses should be supported and fast-tracked to ensure that they get the funding they need, when it’s needed.  The health of our nation depends on it.

This article was first published in Accountancy Age on 8th October 2009