Has Cable done enough to increase SME lending?

VINCE CABLE'S warning that the government is prepared to increase taxation on UK banks if they fail to back small businesses came as little surprise. Small and medium sized enterprises (SMEs) form the backbone of the UK economy, employing more than half the UK's workforce, driving innovation and contributing to more than 33% of the UK's GDP.

Despite claims that demand for lending is low, the latest moves by the government indicates that there is a reluctance to lend to SMEs. Our customers tell us that smaller businesses and start-ups are routinely being denied access to finance at a time when many are being hit hard by rising costs, fuel charges and VAT.

As the Federation of Small Businesses points out: without sustainable lending to viable small businesses, growth, employment and capital investments will all suffer – as will the economy generally – which is why it has become such a key issue.

According to a recent Sage monthly Omnibus of over 1,000 SMEs, more than half (62%) of small business owners still believe that the initiatives set up by the government under its Project Merlin banner will do little to help them access funding.

Insufficient support

It is good to see pressure being put on banks to open up lending, as the prospect of wider access to finance still seems unresolved. When you consider that the qualification criteria around the recently launched Business Growth Fund excludes 97% of the UK's 4.8 million SME businesses – because they do not have a turnover of between £10m and £100m – it is clear that more needs to be done.

The economic conditions make it a challenging time for all businesses, regardless of size, but SMEs in particular feel that they do not have enough access to support from the government. The fact that around two in every five of Sage's Omnibus respondents had difficulty securing funding highlights their often precarious position as the decision on a loan can make or break a business.

While initiatives such as the Business Growth Fund are a step in the right direction, the qualification criteria means that relatively few businesses can actually benefit from this scheme. Opening up funds to established businesses with a turnover of £10m or more is hardly a step-change to the status quo, one in which banks remain highly conservative and risk averse in their lending.

Small business growth has been cited as the cornerstone for UK recovery since the elections last May, so enabling it will remain high on the political agenda. But until more small businesses can get access to capital, recovery is likely to be limited.

Matt Forrest is head of commercial marketing of the small business division of Sage UK