Mighty big talk came from the newly manufactured peer, Lord Mandelson, regarding the great steps he was taking with banks to guarantee loans for small businesses. Just how much of that mighty big package of help that is filtering through is pretty minimal, it looks like.
Over the weekend, it was reported that banks are allowing around 120 small businesses go bust every day while large scale ones get bailed out completely. The so-called Enterprise Finance Guarantee (EFG) was set up by the Government with £1.3bn capital in the form of loans or overdrafts which would be 75% guaranteed by the Government. If you have a small business like mine, then my overdraft has been cut back and last year I was not allowed to flex it for a single month even though I had a capital bond with the same bank worth over 5 times the lending required for just a 30 day period.
Banks did not seem to want to lend even when you had cash and security at the very same branch.
The Scheme That Never Was
As with so much lately, the EFG was set up as a knee jerk reaction to the recession and credit crunch and as a sound bite to ward off criticism and show that the Government cared about small businesses while wasting billions on larger ones.
As has been the case with most things, it was mighty big talk without any action to show for it.
36,000 businesses will go bust this year according to BDO Stoy Hayward and that will cause the loss of over 150,000 jobs, and many affected by this squarely blame the banks. One firm of accountants claims that every single one of his clients who applied for a loan under the EFG had it turned down and that he had not yet heard of any firm that had been granted such a loan. Often the whole thing does not get past a first meeting with the bank.
A Sunday Times report shows that in fact many of the loans granted under the scheme are not new money at all but merely the transferring of an existing overdraft or loan facility with a small top up. In other words, banks have used the opportunity to protect current loans and get a 75% guarantee on them by transferring old loans under the scheme and making them qualify by offering a small bit more.
As has been the way in the this whole banking fiasco, it is the implementation of talk and plans which have lacked precision and diligence and then the Ministers involved either blame those below, the banks or anyone else they can think of when the schemes go wrong.
It is the attention to detail of such plans and their execution that determines their success not the assertive soundbites and words used at the journalistic launches.
The Real Facts
As this week Lloyds are planning to pay hefty bonuses to staff and executives after being bailed out by the taxpayer and despite our owning a decent chunk of them, it really does beggar belief that banks like Lloyds are letting businesses down.
The bail outs and daft schemes have had little or no effect other than to preserve the status quo and small businesses have been just left with the echoes of words from the likes of Mandelson to pull them through.
What companies need is action on these ideas. Banks should be compelled to instantly review cases for loans and answer them in a minimum period of time, certainly less than 6 but ideally 4 weeks from initial contact. Realistically, no small business puts in such a request unless it is urgent so there should be a mechanism to get bridging loans in as soon as the request is made.
To add to this, many businesses who apply for such loans are still being asked for security like their homes, yet up to 75% of the loan is being guaranteed by the EFG scheme - banks should step up to their side of the bargain and take the 25% risk themselves. In order to get faster decisions, the local branches should be given more authority to make the calls on these loans - the faster, the better. Too often such requests are lost in the system and people who know nothing of the business or bank relationship make the decisions in the ether.
Bank terms are changing rapidly and there should be far more notice for small businesses and more proactive help. Too often the first we know of change is after the first new statement is received.
Finally, it would really help if people like Mandelson and bank managers show more knowledge and understanding about the plight of small businesses. Soundbites are only a starting point - to make this work there has to be a flow of commitment and understanding down the entire process chain so that at each step and for each decision made, the goal is understood and the sympathy lies with the business concerned.
The speed at which this recession has struck is frightening and while I have pleaded in this blog with executives to plan ahead, too often businesses can turn from buoyant sales with upward growth to downward with 20 to 30% declines. For small businesses, it is hard to legislate for such incredible swings even with good forethought and so banks have to understand how usually good businesses can need a short term support to hold onto until the business can once again stand on its own two feet.
That will need proper execution of the EFG Plan and its failure flows right to the top. It's time to stand up and be counted for ministers and banks managers as business leaders will not forget how they let us down.
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