Business bank: is the Government missing the point again?

These are the views of specialist commercial finance broker Christie Finance and business support organisation the Forum of Private Business, in response to the official announcement of the new bank by Business Secretary Vince Cable at the Liberal Democrat conference held in Brighton on Sunday.

The new arms-length institution has the aim of opening up £10bn of finance, although this will be delivered by existing banks and it will not be available for 18 months. Specific details of the bank’s operation will not be made public until Chancellor George Osborne makes his autumn statement on 5 December.

Speaking at the conference, Cable said: “For decades, British industry has lacked the sort of diverse, long-term finance that is quite normal elsewhere. We need a British business bank with a clean balance sheet and a mandate to expand lending rapidly and we are now going to get it. Alongside the private sector, the bank will get the market lending to manufacturers, exporters and growth companies that so desperately need support.

"It will be a lasting monument to our determination to reshape finance so it can finally serve industry the way it should. Its success will not be the scale of its own direct interventions but how far it shakes up the market in business finance and helps to ease constraints for high-growth firms.”

Good intentions​

According to David Grant, head of UK business mortgages for Christie Finance, Cable’s announcement is a welcome attempt to get the country’s main sources of debt finance lending again, but it runs the risk of going the same way as previous good intentions.

“Buying existing SME debt from the very banks applying unbelievably stringent criteria to loan applications from SMEs doesn’t seem like a very effective way to increase lending to them,” said Grant.

“Government initiatives have so far ignored the important fact that it is access to debt finance that is the real issue for small businesses.  Lending criteria currently applied by UK banks is so stringent that it’s only the most credit worthy applications which attract their support and it is frankly disingenuous of the Banks to say there’s a lack of demand.”

“Government initiatives so far have concentrated upon discounting interest rates payable, which is all well and good, but interest rates are so low at present that any effect from a repayment discount is practically negligible on the average commercial loan.

“In fact, it’s quite ironic that should the UK lose its Triple A credit rating, then the very Bank in which the UK Government is the major shareholder would be thinking twice about lending to Britain.”

Dual focus​

Meanwhile, the Forum of Private Business’ senior policy advisor Phil McCabe believes that, although the business bank could help, more attention needs to be placed on existing forms of high street bank lending - The Forum is lobbying for better bank lending and other provisions to boost firms' finances as part of its headline Get Britain Trading campaign.

“There’s no doubt action is needed,” said McCabe. “The banks aren’t lending enough and we know this, but we really need a dual focus. That is, getting more transparency in high street bank lending and improving ethics in the way banks treat their small business customers, backed by more lending through alternative sources of finance, such as peer-to-peer platforms.

“That said, it will have the capacity to get more long-term lending to growing businesses in time, and the Government’s willingness to put a billion pounds into the scheme might incentivise other big investors to lend to small businesses.

“However, when we surveyed our members in July the majority wanted any new government stimulus to come through non-bank channels, so SMEs may well greet this announcement rather coolly.”

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