Lending to struggling businesses is not the answer
Published: 29 July, 2009
LIVERPOOL: Commenting on the Chancellor's call to increase bank lending to small businesses, Edward Rimmer, UK and Ireland chief executive, Bibby Financial Services, said: "This is ultimately a catch-22 for small businesses. Statistics from the British Bankers Association and other trade organisations point to an increase in bank lending during June, yet other reports highlight a continued lack of credit availability.
"The key issue is that it would not be responsible of the banks to lend to poor and failing businesses. Banks are being governed to rebuild their reserves and balance sheets and start lending more money. However, practically, this is nigh on impossible during a recession when the number of failed business is up 50% year on year.
"And the other issue is that, given that the last few years saw one of the longest bull markets, over-zealous lending and too-cheap money being lent to the wrong sort of businesses, it is not particularly helpful to make comparisons with previous years when the recession is continuing to bite. Indeed, lending statistics from 2006 and 2007 are so far at the end of the scale they are just as unrealistic.
"The real problem is for medium businesses. Growing pressure is on the banks (particularly RBS and Lloyds, in which the Government hold a large stake) to free-up credit for small businesses, however, the slightly larger business that fall into the ‘medium' end of the scale – likely to be the more stable businesses– are still struggling to access cash and refinance at competitive rates.
"In this case, it seems all the Government is concerned about is reacting to negative news rather than developing a real understanding of what is actually going on within the various areas of commerce. Rather than continuing to hammer the banks, I would suggest a better approach would be to set up a robust taskforce of real business people with the relevant experience to act in a clear and concise advisory capacity."