Will the "funding for lending" scheme work? Will it provide credit-starved small and medium enterprises with the funds they need to begin dragging Britain out of its double-dip recession? The answer rather depends on whether or not you believe SMEs really are credit-starved. Plenty of people, including all of the banks who will be responsible for passing on these funds to SMEs, have long argued that they are not.
Clearly, delivering this scheme has proved much more difficult than the Chancellor of the Exchequer imagined. He first began dropping hints about his intention to launch credit easing programmes in the run-up to his Autumn Statement in November. It then took until March to launch a first stab. This is effectively a second bite of the cherry.
There are two big question-marks surrounding this joint initiative from the Treasury and the Bank of England. First, small business groups are suspicious about the extent to which banks will participate in the funding for lending scheme – and whether their members will see benefits passed on. That's why we are already hearing calls for more robust monitoring processes. We will need to get better at following the money, in other words.
The more fundamental question, however, concerns demand rather than supply. Let's suppose the scheme is wildly successful – that the banks really do feel able to make £80bn worth of loans to the private sector that they would not otherwise have been prepared to offer (not all of the money is for SMEs, note, as the intention is also to provide relief in the mortgage market). Will small businesses actually apply for this credit?
The arguments here are familiar. Our banks have long claimed that those SMEs in the market for credit are mostly getting it. They point out that the Project Merlin targets for lending to SMEs last year were almost met. More recently, the SME Finance Monitor, a survey of some 20,000 small businesses, has shown that only 1 per cent were turned down for credit over the year to the end of March.
On the other hand, anecdotal evidence continues to stack up, with small businesses routinely claiming that credit conditions have got tougher. Also consider the first report from the independent reviewer of the appeals process for SMEs complaining about having credit applications rejected, which was published a few weeks ago. It revealed 40 per cent of such complaints are being upheld, which rather suggests lenders have not been as well-behaved as they claim.
Either way, it is abundantly clear, from the endless survey evidence produced by the likes of the British Chambers of Commerce and the Federation of Small Business, that SMEs feel very nervous about their prospects in the short to medium term. One can hardly blame them, given the prevailing economic winds. In that context, it would be no surprise if many firms were feeling very reluctant to add debt to their balance sheets.
Moreover, in the absence of fiscal support domestically, or an improving international outlook for exports, why would SMEs currently want to borrow to expand? It is not at all clear for many SMEs whether their markets feature customer bases of sufficient scale to keep them profitable in the event of expansion. Extra capacity is pointless unless sales can support it.
In the end, the most that can be said, thus far, about the schemes just announced by the Chancellor is that they will make it easier for banks to meet demand for credit in the event that demand exists or develops.
There has long been a tension between the regulatory desire to see banks improve their capital and liquidity, and the economic imperative to persuade them to lend more. Funding for lending and the additional liquidity measures announced simultaneously will ease that tension. But that's not to say SMEs will want to take advantage.
Pioneers in car sensors plan route to international growth
Anturion's core business is producing sensors that monitor the amount of harmful gases that vehicles produce in their exhaust emissions. In the current environmental context, that's clearly a potentially lucrative space to inhabit.
The latest developments at the company are a little different, however. Anturion has just reached a deal with Sensonor, a Norwegian firm, to develop thermal imaging sensors for cars – the devices are much in demand among luxury marques, which offer them to drivers as a feature that enhances night vision (they're common in electric cars too).
At the same time, it has signed up US-based Jexpress as a distribution partner, making the company its sole sales agent in China. Jexpress already has a strong presence in China, including in Anturion's key automotive sector, but will also bring £1.3m of funds to the deal, which should make a major contribution towards the development costs of Anturion's new thermal imaging sensor.
Jexpress' investment is being made in return for an equity stake, with the firm paying 16p a share for its minority holding, a premium to Anturion's price on Friday of 14.75p.
That price, by the way, is for Anturion's listing on Plus, but the company says Jexpress' investment will speed up its transfer to the Alternative Investment Market, which is already underway.
Small businessman of the week
Edward Eisler, founder, Jing: We sell tea in 75 countries – including China
I founded Jing in 2004 when I was 25. I had spent a lot of time travelling in Asia and I was fascinated by Asian culture – part of that, particularly in China, was tea culture.
"The quality and variety, I felt, was very special, and while the growth of specialty tea sales in the UK was good, there was no single business that had really set out to target sophisticated, modern consumers. We started by targeting top hotels and restaurants – Heston Blumenthal at the Fat Duck was an early customer – while also launching an online shop from which consumers were able to buy.
"It's not just the tea itself, but the whole experience: the teaware you use, for example, is important, which is why we launched our own range, and the way in which the tea is made and served is crucial too, so we offer training and advice on that.
"I still do a lot of the sourcing myself and I've travelled more than 100,000 miles over the past three years – you can buy from traders, but it's not the same as sitting down with the producers.
"For any brand, the key is focus and for us that means focusing on the guest experience at luxury hotels and restaurants across the world, as well as selling to consumers in 75 countries.
"We even sell tea in China.Reuse content