The Federation of Small Businesses (FSB) has cautiously welcomed the announcement that the four major banks will increase lending to small and medium enterprises (SME) by 15% this year, as access to debt continues to be a challenge.
George Osborne has announced that banks will commit to lending a total of £76bn to SMEs this year compared with last year’s £66bn in a bid to make banks contribute to Britain’s economic recovery.
But according to the FSB’s chair of environment David Caro, the impact of the extra lending will depend upon how easy it is to access the debt and how flexible the banks will be with setting up lending arrangements.
He said: “The banks can’t just loan to anyone but they do need to ease the terms a little. For example, for many SMEs the chief executive has to put their house on the line, even if they have collateral within the company, which isn’t fair.
“The potential idea that the Government is mooting about the Green Investment Bank may be a better option for waste and recycling firms, particularly if they wish to invest in new equipment. It seems as though the GIB will be a lot more flexible than the regular banks but, of course, companies in this sector will have to wait until it is set up.”
According to Caro, banks are keen to offer SMEs invoice financing deals, which are more suitable for cash flow rather than investing in equipment for plants. In addition, small businesses will first try to find money from places other than the bank because facilitation fees, such as for an overdraft, are so high that they can get businesses into more debt.
Managing director of plastic bottle recycler Closed Loop Recycling Chris Dow recently told MRW of his struggle to get debt from banks despite having a good business plan. Commenting on the banks’ commitment he said: “It is a very positive move in the right direction. If more funds are available then it makes it easier for them to support businesses such as Closed Loop.”