By Daniel Hunter
On the day that Chancellor Osborne announced a new lending scheme aimed at small businesses the British Chambers of Commerce accused the scheme of neglecting smaller, younger high growth firms.
The Government is using the UK’s budget credibility in financial markets to provide up to £20 billion of government guarantees on unsecured borrowing by banks, enabling them to borrow at a cheaper rate.
The scheme is aimed at helping smaller businesses across the UK, with an annual group turnover of up to £50 million, access cheaper finance. However, John Longworth, Director General of the British Chambers of Commerce, said that it will not help all smaller firms.
“The current economic challenges mean that the government must look at new and innovative ways of providing credit to viable firms," he said.
"While credit easing is a step in the right direction, it is not a panacea for all the problems faced by businesses trying to access finance. The National Loan Guarantee Scheme will make some loans more affordable. But it will not help the smaller, younger, and high-growth firms that have trouble getting credit in the first place.
“Businesses’ trust in banks has been scarred over recent years. Since credit easing will be accessed via the banks, lenders will need to work harder to encourage firms, many of whom have been turned down for loans in the past, to consider applying for credit.
"Banks will need to ensure that their staff are able to fully explain these new loans, and that those business owners that aren’t eligible for the scheme, are advised of suitable alternatives.
“Banks are in a difficult position. They are being asked to recapitalise, deleverage, comply with new regulatory rules, and lend — all at the same time. So we believe more radical action is needed.
"Over the medium-term, a brand-new, fully-fledged state-backed SME bank, which could eventually be returned to the private sector, should be created as a matter of urgency. In addition, the Treasury and the Bank of England should find a way to back SME bonds or infrastructure investment bonds.”
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