Budget 2010: Credit adjudicator may be too ponderous to help

The creation of a body that will sit in judgment over whether banks are
treating their small business customers fairly could provide an unwanted layer
of red tape.

While many organisations welcomed the chancellor’s move to set up a small
busi- ness credit adjudicator, one source familiar with the loan application
process for small businesses said a ruling from the body could come too late for
many firms.

“By the time the ruling has been made, it could be too late, the opportunity
for the small business could have passed,” he said.

The adjudicator will work closely with a newly enhanced Business Link
financial intermediary service in order to ensure that small businesses are
treated fairly when applying to their bank for finance.

The adjudicator will be given statutory powers to ensure that the judgments
it makes are enforceable.

But some questioned who would pick up the bill for losses that resulted from
imposed credit decisions. “What will happen if the adjudicator imposes credit
decisions that lead to worse outcomes than the average loss realised across a
bank’s books,” said David Sayer, global head of retail banking at KPMG.

According to government figures, the creation of the adjudicator could cost
in the region of £10m. The Federation of Small Businesses welcomed the move,
saying that “more competition for the high street clearers has been a long time

However, resources could be an issue – the adjudicator will need to have a
team of highly qualified credit experts to quickly review the applications if it
is to have any effect.

The banks have been criticised for not providing enough new finance for small
businesses as they emerge from the recession.

“There are still companies who are being unfairly denied credit and feel that
they are powerless to challenge the decision,” the chancellor told the Commons.

“I want to change this position and give them the right to have their credit
complaints examined.”

RBS and Lloyds Group, both part-owned by the government, have been told by
chancellor Alistair Darling that he expects them to make £94bn available in new
business loans this year, with nearly half of that total going to small


If it is going to be a fast track ser vice, then the adjudicator is a
neat idea, and will certainly focus the minds of those in the small business
lending departments. But the danger is that the process could be too slow for
those firms that are crying out for cash. And an extended appeals process could
make it unworkable.

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