It is hard to believe, but it has been five years since the bottom fell out of the financial system, plunging the globe into the deepest and longest-lasting recession since the 1930s. Over these last five years the UK has struggled with the twin competing goals of reducing our dangerously high national debt, while at the same time creating an environment where the economy can grow.
While we might generously give them an A for effort, we will have to grade them with a D for results.
Yet again recent statistics and surveys show that in spite of an enormous amount of column inches and breast-beating being expended, small business lending remains stagnant at best and even contracting in some sectors. In particular the beleaguered construction sector remains on life support.
I have argued in the past that this is not just the fault of the banks, which face calls to keep high levels of capital and follow prudent lending policies. However my own anecdotal evidence of talking to hundreds of business owners a week informs me that this doesn’t mean that lenders should be let off the hook as they are in no small part to blame. Should we believe the bankers when they claim that there is no demand for credit from small businesses?
Pricing a pizza at £30 a slice and insisting on photo ID to purchase it will ensure a lack of demand for your pricey pizza.
Time after time I hear of well-run and profitable businesses being squeezed, either by a reduction in facilities, an increase in their cost of borrowing, or an increase in the level of security required.
But again, it is not right to argue that this is a bank issue alone. It is a matter of national urgency that lenders, recipients of massive taxpayer bailouts and on-going subsidy, are encouraged by the Government to tailor their working practice to the demands of the moment. They could do this in several ways:
[icon_list_item type=”arrow-right”]Ban the application of generalised sector lending restrictions – we can see how this is affecting the construction industry on a daily basis.[/icon_list_item]
[icon_list_item type=”arrow-right”]Re-instate localised lending authority – Head Office “computer says no” lending decisions have hurt banking badly.[/icon_list_item]
[icon_list_item type=”arrow-right”]Partner with other lenders to ensure deals happen – banks have long tried to keep their arms around all of the lending for a business and need to let go. Peer-to-peer lenders, pension-led funding and many other options should be part of the mix for a business.[/icon_list_item]
The Government does have a big stick. The threat to withdraw the cheap funds available to big lenders. They can also impose the opposite and increase costs for lenders who do not co-operate.
It is time to use the stick.