SMEs, don't expect any favours from the coalition
I wonder what the outcome of the general election would have been had the electorate comprised only of people whose livelihood depended on SMEs.
I am inclined to cynicism.
I cannot see working any policy initiative that will impose on lenders a binding obligation to lend at reasonable rates to SMEs. As the new credit cycle develops, the debt market will ease – but attempts to accelerate this are easily circumvented by lenders who will argue that their higher rates simply reflect the increased risk of default in the climate of uncertainty that the government has magnified. Government is unlikely to ameliorate the commercial risk to lenders for fear of creating a climate of irresponsibility.
The fiscal arithmetic leads to the conclusion that a combination of lower government expenditure and increased tax revenues is necessary. But we know from experience that lowering government expenditure without reducing the demand that stimulates the broader economy is unachievable. The need to cut the deficit is undoubtedly urgent, so massaging away administrative waste must be trumped by the cancellation of state-sponsored projects – and SMEs will suffer as a result.
That leaves only raising revenue and the most bankable routes are by increasing VAT and charges that fall as fixed costs.
So, if you run an SME, don’t expect any favours from the new government. There will be many fine words and exhortations but little tangible help in the short run. You are going to have to prosper despite further financial impositions by both local and national government.
Your best policy is to anticipate an increase in fixed costs and to take pre-emptive action now to compensate. Try to reduce rent or negotiate a waiver of the next review. Talk to your local authority about fixing business rates at the current level for five years. Review your insurance premiums and fix for several years on the basis of no-claim ten per cent pa reductions. Try to negotiate long-term fixed price deals with as many other suppliers as you can. Many will, like you, engage flexibly in order to secure your business for the next few years.
Visit your bank and ask them to explain, in detail, the conditions they require your business to fulfil in order to secure the loan you require at the rate you can afford. Get this in writing or, if it’s not forthcoming, get in writing an explanation as to why they won’t provide the information. Mr Cable will be interested to receive a copy of the latter. Send it to us and we’ll make sure he receives it.