Friday, 03 May 2013 10:03

The Business Bank: a 'helping hand' for SMEs?

The government's much-anticipated Business Bank got a kickstart of its own in the 2013 Budget, with the news that at least some of its measures are due to be introduced ahead of schedule.

But while a £300 million investment programme for SMEs was officially launched on April 10th by business secretary Vince Cable, just how far does it go to give small businesses the boost they need to grease the wheels of the UK's jammed economy?

On the surface of it, the Investment Programme looks appealing - applications are being accepted right now, from lenders who use non-standard channels, including peer-to-peer lending and this government's old friend, supply chain finance schemes.

However, delve into the detail and, perhaps unsurprisingly, there are a couple of rules that many SMEs might not welcome.

Who can borrow?

First of all, if your business is particularly cash-strapped - which might seem likely for any company looking for lending - there's a chance you won't be able to borrow anyway.

Guidance published on the UK government's GOV.UK website on April 10th states that lending under the Investment Programme is only available to "viable businesses" - meaning it cannot be used as a source of rescue finance.

Even if you meet the criteria for lending, there are strict deadlines on the programme; lenders must issue their first loan by June 30th 2014, and must use their government funding in full within three years.

While June 2017 may seem a long way away, that means the Investment Programme is likely to be exhausted well before the UK economy is back to its best.

Government in profit

Perhaps most surprising of all, this scheme - which ostensibly is designed to help companies borrow when they might otherwise not be able to - is designed to be profit-making for the government.

Under the terms of the Investment Programme, the government's stake in any lending scheme - which cannot amount to more than 50% of the total lending - must be on no worse profit-making conditions than any funds placed into the same scheme by private investors.

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The GOV.UK guidance goes so far as to state that schemes should:

"generate commercial returns, with government investing on terms and with a return and level of risk that would also be attractive to private-sector investors".

It stresses this point again a moment later, adding that:

"government will invest on equal terms with private-sector investors, e.g. generate the same net return and share the same level of risk as private-sector investors".

With this principle deemed important enough to state twice, it seems the Investment Programme is far from the altruistic boost to business lending that it has been described as being in Parliament.

What can I do?

As always, prevention is better than cure, and we would always suggest that it is better to fund investment and expansion using your own money, than to borrow it from others.

Take a look at your cash flow and determine whether a more structured approach to invoicing could help you to unlock investment finance by reducing your risk of exposure to late payments.

If your problem is not a lack of revenues, but simply that your customers are not paying you quickly enough for the funds to become useful, speak to us about our credit control services and how they might help you to get paid on time.

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https://www.gov.uk/investment-programme-to-encourage-lending-to-smes

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