Running on empty

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, while I agree with Dragon’s Den’s Peter Jones that ‘easy credit’ can keep
lame as well as sound businesses afloat (Accountancy Age 1 and 8 October), there
is an urgent need to deliver swift and adequate funding to deserving businesses.

Are 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 have been mooted recently, for example,
Sandy Chen from Panmure looking to set up a bank and the Post Office’s “Post
Bank”. These show just how far the banking model of the “noughties” 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 bedrock 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

Hardly anyone 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. 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.

Guy Rigby is head of entrepreneurs at Smith & Williamson

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