Small Talk: Why this blockage in the lending pipe?

Click to follow
The Independent Online

It has become the defining issue of the economic slowdown: are small and medium-sized enterprises, which almost everyone seems to believe are the key to dragging us to a recovery, getting the finance they need to grow? So why, given what an eminently sensible question this is to ask, do we not seem to be getting any nearer to answering it?

The statistics certainly don't help. We know, for example, that the banks missed their targets, albeit marginally, for lending to SMEs under the Project Merlin deal last year. But was that because of parsimony on their part, or a lack of demand from SME customers?

The Bank of England's quarterly Credit Conditions Survey, published on Thursday, underlines our failure to get to grips with this basic question. It revealed the amount of credit made available to SMEs in the first three months of the year was broadly similar to the pattern in the final quarter of last year (though lenders had previously expected an increase). It added that demand for credit from SMEs had actually dropped.

Now, is demand falling because SMEs expect to be turned down and therefore don't apply? Or because, as the survey reports, there has been "some tightening on price and non-price lending terms during quarter one"? Or because SMEs are being cautious about taking on debt amid uncertain economic conditions? Or because they have sufficient credit in place already?

Any of those explanations are possible. But the Bank of England's work does not begin to pinpoint which is the most credible. Nor, in fact, does the work of any other organisation – instead, the banks and the small business lobby trade accusations and insults for which neither side can produce real evidence.

It might help if there was an independent authority to which SMEs unhappy with lending decisions could take their case – we might at least then get a better picture of the type of businesses that are finding credit hard to come by, and whether rejections are justifiable. But only the smallest businesses – those with an annual turnover of less than €2m and fewer than 10 employees – have the option of complaining about their bank to the only such authority currently in existence, the Financial Ombudsman Service.

The good news is that new sources of finance are slowly beginning to emerge. The takeover last week of Singer Asset Finance by Shawbrook last week will see the latter, a new bank that deals predominantly with small businesses, double its lending target for the year to £700m. Aldermore, a similar banking launch, is also growing quickly, while the peer-to-peer lending sector is interesting too.

Still, these are brave ventures. For these new lenders are launching into a market that – for all the public debate – is very short on hard data about credit shortfalls for viable businesses. Anecdotal evidence, of which there is a great deal more, is no substitute.

Nor are the new banks the only ones chancing their arm. Through schemes such as credit easing, the Treasury and Department of Business are putting billions of pounds of taxpayers' money on the line without having clear sight of whether it is necessary to do so. It's a curious way to make policy.

Proteome steps along Alzheimer's diagnosis trail

Scientists in the battle against Alzheimer's Disease are struggling on many fronts, but there was some positive news on one of the most important last week from Alternative Investment Market-listed Proteome Sciences. It reported a potential breakthrough in the quest to find a simple blood test with which the disease might be diagnosed – currently, testing for Alzheimer's is difficult at any stage of the illness's progression.

Given that, on some estimates, 60 per cent of Alzheimer's cases are not properly diagnosed, such tests clearly have real clinical value. Assuming Proteome's work can now be developed into clinical tools, its financial value is also obvious.

House broker Singer Capital Markets is certainly excited by the commercial potential for the tests and expects a further development on progress towards a diagnostic tool before the end of the year. Its target for the stock, 33p, has already been exceeded, with Proteome now trading at around 36p.

Comments