Of bank bailouts & lending monopoly against small-timers

Of bank bailouts & lending monopoly against small-timers

The Federation of Small Businesses said the situation had become so bad that it wanted ministers to urgently consider backing alternative sources of finance to allow smaller firms to survive the recession. Regional development agencies, local councils and the Post Office should be allowed to mimic banks and offer loans, the trade body said.

John Wright, the federation’s chairman, said that a previously vibrant credit market had disappeared in 2007 and failed to return. Support for the UK’s major banks was a positive step, he said, but more needed to be done to offer a wider range of specialist loans. “With a quarter of small firms still struggling to access affordable finance, the power of the financial sector should be challenged to guarantee a fair service for small firms,” he said.

The market has contracted in large part because overseas-based lenders withdrew from UK operations in the wake of the crunch and returned to incentivised lending markets in their home countries, resulting in far less competition for loans.

In the US, private equity firms have invested heavily in finance companies with a view to becoming major lenders. Regulators and politicians have encouraged the growth of alternative lenders, knowing it will take several years for some of the country’s banks to get on their feet.

Private equity firms

Private equity firms have indicated they plan similar moves in the UK, but so far have only invested on a limited scale. Wright said he wanted to challenge ‘a potential monopoly of power’ being built up by high street banks over small firms seeking finance. Designer Snowden Flood, who runs a business in London supplying Liberty and other stores, said she was suffering from delayed payments from a customer refused credit by its bank.
“My bank is fine, but one of the shops I supply owed me £1,400,” she said. “It had opened a second outlet and when it began to struggle, the bank cut its credit lines. It has since paid £800, and was due to pay the remainder last week, but nothing happened.” Flood designs and manufactures a range of home accessories from tea towels to ceramics for several shops and exhibits across Europe. “Because I manufacture in the UK and my margins are thin, I’m telling the shop I can’t supply it for Christmas unless the situation changes,” she said.

Banks, which reported their first-half results last week, insist they are ready to lend to small businesses. They also dispute claims that they are imposing interest rate and fee hikes on businesses that struggle to make payments. Royal Bank of Scotland said customers were choosing to pay off debt and that loan applications were down 37 per cent. The bank is turning away 15 per cent of applicants on risk grounds— some 30,000 small businesses — although chief executive Stephen Hester insists this is at the same rate as seen last year, before the crisis.

Hester said: “We are open for business. If you know a creditworthy customer who needs money, send them to us.”

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