EIB Funding Initiative Not Revolutionary says Bibby
Small businesses across the UK were given a boost recently, as the European Investment Bank’s (EIB) announced it would provide over £700 million of funding to nearly 3,000 small firms through participating national banks.
However, it is questionable how many UK businesses will actually gain access to this funding and how it will affect the economy in the long run.
Edward Rimmer, chief executive, Bibby Financial Services said:
“Despite Government attempts to increase funding available to small and medium sized businesses through EIB funding, the initiative still poses several limitations to small firms hoping to access the finance they need to take their businesses forward.”
In his 2008 Pre-Budget Report, Chancellor of the Exchequer Alistair Darling announced that UK small firms could benefit from up to £4 billion of EIB finance between 2008 and 2011. Small businesses access the funds through intermediating national banks, which then lend the finance on a matched funds basis, where firms must match any funding given with their own contribution of the same amount.
Together with a range of other measures being implemented by the Government to support UK businesses, this scheme is designed to ensure that small businesses in the UK continue to have access to the best support available. However, the number of firms that will actually be successful in accessing these funds remains questionable.
Edward Rimmer continued:
“At face value, the scheme sounds like a great opportunity for the small business community. However, the fact remains that whilst EIB finance may be available to nearly 3,000 small businesses, the funds are only accessible via traditional banks, which continue to set vigorous criteria and credit scoring to businesses seeking financial support and will not necessarily lend to smaller firms.”
“Indeed, the banks themselves must still take risks when lending to business owners, therefore applying the same strict credit sanctioning for funding, regardless of whether the EIB provides the finance or not. In this respect, the number of small businesses seeking support may still face the same obstacles in terms of gaining access to finance and the number of firms that succeed in gaining funds remains uncertain.”
“Furthermore, the fact that EIB funding is only available on a matched funds basis poses another potential problem to some small businesses applying for finance, as they will have to dig into their own reserves and as we know, cash is not easy to come by at present.”
“The initiative is an interesting one, but certainly not revolutionary, as it will only aid a certain section of the market and not all will qualify for funding. While we support the Government in its attempts to bring about some liquidity and stability for small businesses, this initiative is simply not clear enough and does not go far enough to help small business owners ride out the recession.”