Mandelson plans to give small businesses a statutory right to appeal against unfavourable lending decisions. This has been dismissed, quite rightly, as ?dotty? by Richard Lambert at the CBI.ufeffIn any event, when will Mandelson and co realise that equity, not debt, is the way to finance small companies? James Featherby, partner of 20 years standing in top City law firm Slaughter & May, sums up the debt-versus-equity argument perfectly in an excellent pamphlet called The White Swan Formula. He says: ?Unlike equity, debt will insist on its pound of flesh. Equity, by its nature, shares risk and reward. Debt insists on repayment, even when mercy would dictate otherwise. Debt narrows relationships down to mathematics rather than shared endeavour. By not sharing risk, at least not intentionally, debt does not help to build mutually constructive, two-way relationships, based on track record, trust or common purpose.” Mandelson himself has had the odd run-in when it comes to obtaining loans. Companies should be equally aware of the demands of debt and try hard to stick to equity finance. Meanwhile the FSA has been keeping the financial community and hacks riveted with its spectacular burst of energy in arresting all and sundry for alleged insider-trading offences. I suppose you can?t blame them from putting on such a display in a last ditch attempt to get the Tories to recant from their decision to fold them into the arms of the Bank of England. Unfortunately, away from these show trials, the FSA has just implemented something which could make it far harder for small companies to raise that much-needed equity capital in the future. Among experienced City smallcap players, it is well known that the FSA has never been too keen on AIM and PLUS as, unlike the Full List (the Big Board), which it controls through its ownership of the United Kingdom Listing Authority, it has no say on which companies should be admitted to these specialist small-company markets. From April 6, the FSA has taken advantage of a convenient policy directive from Brussels and created the Standard List ? part of the Full List which companies can join without a three-year trading record and with no requirement to have a sponsor. Go to the Listing Regime section of the FSA’s website and see for yourself. Many commentators, myself included, think this will drive companies away from the specialist small-cap equity homes of AIM and PLUS, and into the unsuitable world of the Full List, making it ever harder for these markets to do their job of providing small handfuls of millions of pounds of equity and nurturing these developing companies accordingly. Good news for control freakery at the FSA. Bad news for the purpose-built equity centre of the small-cap world. For more than 30 years, the City Grump has had experience of senior positions in most aspects of city life. These include stockbroking, stock exchanges, fund management and corporate finance.
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