Lending to SMEs Criticised

A report from the Commons Public Accounts Committee has been critical of lending to the UK’s Small and Medium-sized Enterprises (SMEs)

The Public Accounts Committee (PAC) has published its 38th report of this session, examining the state of small business finance.

Foremost of the issues reported was the decline in net lending by the banks participating in the Funding for Lending Scheme (FLS). Between 2010 and 2013, the number of loans and their value fell year on year with the overall decline being reported as £2.3 billion since the scheme began.

On top of the reduced availability and funds for SMEs, the report also criticised business lending from government departments as being "ad hoc" rather than a "coherent programme".

Another criticism of the PAC report was that it believed there was no coherent understanding of the SME sector, specifically which areas were actually generating growth and where government support could be focused to leverage the most benefit.

This failure to identify where the nation’s 4.9 million small and medium-sized businesses need help has meant that government departments have been unable to demonstrate if and where they are achieving best value for their spending of taxpayers’ money.

With six schemes being run by the Department for Business, Innovation and Skills (BIS) and FLS being jointly overseen by HM Treasury and the Bank of England, the report welcomed the anticipated opening of the new British Business Bank later this year.

It is hoped that the new British Business Bank, already equipped with £1 billion worth of capital to invest in UK commercial ventures, will be better able to monitor the SME landscape and provide more streamlined access to finance for businesses.

A lack of awareness amongst SMEs to the finance options open to them was another issue identified by the PAC with many firms still relying on costly credit cards and overdrafts to artificially stimulate their cash flow. Again, the British Business Bank is expected to play a role in this area when it is launched this year.

Chair of the Committee of Public Accounts, the Rt Hon Margaret Hodge MP, said of the report:

“Small and medium-sized enterprises have a vital role to play in driving the UK’s economic recovery, but despite Government attempts to encourage lending to SMEs many still struggle to access the finance they need.

Hodge singled out BIS for particular criticism:

“It helped nearly 6,000 firms during the last financial year, but more could have been helped if the department had done more to ensure that SMEs are aware of the potential financing options available to them.

Speaking about the British Business Bank, the MP said:

“Government must use the establishment of the Bank to start managing departmental schemes as a coherent programme, clearly setting out what it wants to achieve, and how each scheme and the programme as a whole will contribute towards the overall objective of making it easier for SMEs to access the finance they need.”

Evidence for the report was collected from the Department of Business, HM Treasury, the British Chambers of Commerce, Barclays Bank and The Federation of Small Businesses.

John Allan, National Chairman, Federation of Small Businesses, responded to the PAC report saying:

“Recent FSB research shows hundreds of schemes available to support small and medium-sized businesses, but no clear mechanism for evaluation, coordination or communication either at the national or local level. At the central Government level the FSB agrees the British Business Bank should be the mechanism to simplify existing Government lending schemes and believes it should also provide information about alternative lending to small firms.”

Allan continued:

“The Business Department needs to clarify what the suc cess measures are for existing schemes as well as for new schemes that are introduced. The FSB believes this must include total increased lending as well as how the schemes fit with each other. Above all, the British Business Bank must look at how these sc hemes are communicated to business so that small firms have much more awareness about the schemes which are available to them.”

The overview of the PAC report can be seen at the page Improving access to finance for small and medium-sized enterprises with links to HTML and PDF versions of the full report.

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