Why there are too many government lending schemes

Two days before George Osborne is to announce this year’s Autumn Statement, hopes across the country are that he will call for more support for Britain’s small and mid-sized businesses. Boost business, boost the economy, is the mantra – and if the government doesn’t pull the strings on this, who will?

But isn’t the government’s helping hand stretched out already? The headlines in 2012 have been busy announcing one government initiative after another, and promised new schemes to help stimulate business growth.

The Enterprise Finance Guarantee scheme (EFG), the Seed Enterprise Investment scheme (SEIS), and the Supply Chain Finance scheme are only a fracture of initiatives launched by the coalition government.

Nevertheless, the survival of their company is keeping business owners awake at night. Business lending fell by nearly five per cent last year to £429bn, according to the Ernst & Young Item Club – that is the fourth consecutive annual drop.

So many schemes, so little capital

Nine in ten SME owners in the UK don’t believe the government’s initiatives have been of any help to their business, according to research by accountancy firm Shelley Stock Hutter LLP. Their respondents did not expect much from future schemes either: just one in ten business leaders believe the government’s plans to launch a state-backed bank in 2014 will indeed help their business.

If that’s so, where is the money that is flowing into the government schemes, supposedly to help SMEs? Enterprise Finance Guarantee Lending – a loan guarantee scheme to facilitate additional lending to small and medium size enterprises lacking adequate security or proven track record for a normal commercial loan – has offered loans at a total value of £263.95m between January and September 2012.

But at the core of the issue might not be the money itself, but rather a breakdown of communication between government and business. Shelley Stock Hutter’s research revealed that nearly two thirds of business owner do not understand the benefits of recent government initiatives. 

Indications, conditions and benefits of the Enterprise Finance Guarantee was a riddle to three quarters of the study’s respondents. Just over a tenth had any knowledge on the National Insurance Holiday scheme; despite the fact that more than a quarter stressed that they want the government to reduce the national insurance burden on employers.

What is behind this ignorance? Does the government fail to communicate the benefits of its initiatives effectively, or do business owners simply need to get up to speed on the forms of alternative finance around?

Bobby Lane, a partner at Shelley Stock Hutter suggested: “I’m not surprised that there is little or no understanding about the recent initiatives introduced by the government. There have been a number of initiatives introduced for small businesses, but little supporting information or an education campaign to follow this up. As a result many small businesses are at sea as to how their business will gain and what steps have to be taken to benefit from the schemes.

“The Enterprise Finance Guarantee Scheme has been a great help to some businesses, yet the scheme has received a lot of negative publicity over the past two years. If businesses were made aware of how to access the funding and go about it in the right way, then there would be more successful applications.”

New Year’s resolution: let’s be clear

Don’t be confusing, just help us out – could that be number one on the Autumn Statement wish list? While comments on the business bank are widely expected from George Osborne on Wednesday, some believe Vince Cable’s brainchild could be the way to some hands-on support.

When announcing it this September the business secretary promised to fight short-termism and “get behind” good firms. The bank would help many small and medium-sized companies who have struggled for credit since the financial crisis.

The details of where the state funding would come from, however, and the bank’s operation would not be made public until the Autumn Statement on 5 December, Lib Dem officials said at the conference in September.

In the CBI’s autumn letter to George Osborne last week, the lobbying organisation called to action for government to make the business bank a key priority for next year – by making it a one-stop-shop for finance-hungry businesses.

John Antunes, director SME and Channels, SAP UKI agreed with this idea: “The amalgamation of existing schemes into one clearly defined and easily accessed business bank is crucial. Factoring [small and mid-sized firms] into the wider issue of accessible finance is crucial in order to avoid the challenge that we face today: too many complex funding schemes.”

Turning the sea of government funding schemes into one steady lending stream for businesses sounds like the way to finally give the UK’s SMEs the chance to prosper.  Bobby Lane commented:

“Ultimately for many businesses this could mean the difference between survival and growth. The answer is not to saturate the SME marketplace with more initiatives but to make a concerted effort to provide more detailed information on existing schemes, the best way to access them along with the most appropriate way to finance their business.”

On Wednesday, the chancellor will shed some light on the business bank’s future – and on whether government funding initiatives will be simplified. 

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