The basic idea of the scheme is to make it easier for banks to fund their own lending. What does it mean in real terms: that it is cheaper to refinance? Or just make it easier to raise the funds?
Whatever the motive, it is clear that the architects of the scheme are missing the point why SMEs find it difficult to raise funds. It is not about interest rates or the loan amounts (our experience confirms that) - it is the way banks view proposals in a negative way and in order to protect themselves, they invent more hurdles - or as they would say “underwriting criteria”.
So if a bank views feels that a university lecturer has no relevant experience to run a news agent (a real case) then no government initiative will ever change that. The same applies if a bank thinks that the local seaside guest house is a risk, again, no amount of reduction in the funding costs will change that. The same applies to the local builder who wants to convert a couple of houses and so on.
The real problem is thus not the cost of funding business loans, it is the underlying attitude or “risk assessment” (to use the technical term). Nobody wants to go back to the lending policies of 2007 and equally nobody wants to keep the lending policies of 2013 – what is needed is good old fashioned common sense and thankfully there are some banks who still possess common sense and are able and willing to help, otherwise we would also be out of business.
Henry Ejdelbaum
ASC Finance for Business
London
