David Prosser: 'The offer of unaffordable credit is as useless as the offer of no credit at all'
Tuesday 10 November 2009
Who to believe? Royal Bank of Scotland (RBS) said on Friday that businesses were paying back loans as fast as the bank could make them – and that British companies have unused overdrafts with it worth a total of £27bn. Like the rest of the banks, RBS insists it is not restricting the supply of credit to business customers.
So how come every little bit of anecdotal evidence and most economic research suggest that businesses – particularly small and medium-sized enterprises (SMEs) – are still struggling to borrow the money they need? The most recent survey from the Confederation of British Industry (CBI) revealed that a sizeable minority of businesses had found credit harder, rather than easier, to come by over the previous three months.
Lord Sugar, the tycoon-cum-TV star appointed earlier this year to the Government to represent the interests of growing businesses, reckons he knows how to square the circle. "I can honestly say a lot of problems you hear from people who are moaning are from companies I wouldn't lend a penny to," he told SME managers in Manchester last week. "They are bust and they don't need the bank – they need an insolvency practitioner."
The Federation of Small Businesses, suffice to say, begged to differ, and was scathing about Lord Sugar's comments.
But there may be a kernel of truth in what The Apprentice star has to say. In a recession, of course, banks are going to be more cautious about which businesses they lend money to. Given the kind of bad debt provisions that banks are currently making, it's hardly surprising that they're reluctant to advance money to any business about whose trading prospects they have concerns.
Still, the problem must be more deep-seated than that. RBS presumably isn't lying when it says that its overdraft facilities are not being used – or that many companies are paying back loans rather than asking for new credit.
RBS and its rivals have not told us what sort of terms they are making credit available on. The CBI's data suggests those businesses that do get a yes from the bank when applying for credit are being asked to pay much more than in the past for the advances.
What seems to be happening is that banks are routinely raising the charges and interest rates paid by businesses. That's not surprising – they are desperate to return to profitability – but it does explain why overdraft facilities are not being used. The offer of unaffordable credit is as useless as the offer of no credit at all.
It is also worth saying that SMEs don't all depend on credit to get by and grow. The Independent's own research reveals that many of these businesses have balance sheets that would make their stock market-listed rivals green with envy. Staying away from the stock market has actually been a positive in this sense. Many listed companies are loaded with debt because shareholders put pressure on them to gear up.
Still, businesses do need credit from time to time. And it is clear that many SMEs are finding it difficult to borrow.
Where else then might SMEs find credit? One idea being kicked around the corridors of the London Stock Exchange (LSE) points out that many other countries have thriving markets for bonds issued by SMEs, with private investors snapping up the debt issued by these enterprises. In the UK, by contrast, only large companies, with ratings from the agencies, are able to issue corporate bonds, which are almost entirely the preserve of institutional investors.
The LSE is thus keen to launch an exchange on which smaller businesses' bonds might be traded, giving SMEs a crucial new market on which to raise credit. Their reliance on the banks might then be diminished.
elephant appealThe first 23 lots in our charity auction have now gone. But there are 22 more still up for grabs
musicPolice chief rejects rappers' claims that his work is as dangerous as law enforcement or military service
comedy'Fresh Meat' star sees off stiff competition from Alan Carr, David Mitchell, Graham Norton, Lee Mack and Sarah Millican to win top prize
Beatles rush out 'bootleg' album to defy EU copyright law
healthJames Bond's alcohol consumption puts him at 'high risk' of cirrhosis, tremors... and impotence
tvSpoiler alert: Find out the result of a heated final show
Harvey Weinstein reveals his secret weapon on-set
Now that an oil trader's drinking has got him sacked, will we all have to make do with an afternoon latte?
Chiwetel Ejiofor and Idris Elba get nods for Best Actor, which no black Brit has ever won
Geoffrey Macnab reviews The Desolation of Smaug - the meat in Peter Jackson's Hobbit sandwich
peopleWhat advice would David Cameron give to his younger self?
Mystery of Epping Forest 'big cat' is solved
French café starts charging extra to rude customers
Scientist create 'robotic sperm' to help with fertilisation and drug delivery
Australia incest case: Deformed children found in remote farming community after generations of inbreeding
Fox News presenter tells viewers it is a 'fact' that both Jesus and Santa Claus are white
- 1 French café starts charging extra to rude customers
- 2 Sun will 'flip upside down' within weeks, says Nasa
- 3 Australia incest case: Deformed children found in remote farming community after generations of inbreeding
- 4 Physicists discover 'clearest evidence yet' that the Universe is a hologram
- 5 Fox News presenter tells viewers it is a 'fact' that both Jesus and Santa Claus are white
- < Previous
- Next >
iJobs Money & Business
£44999 - £60001 per annum + Benefits: Pro-Recruitment Group: A Top Tier firm i...
£30000 - £45000 per annum + Bonus + Benefits: Harrington Starr: Regulatory Man...
£50000 - £75000 per annum + benefits + bonus: Harrington Starr: Pre-Sales / Cl...
£40000 - £60000 per annum + Bonus + Benefits: Harrington Starr: Regulatory Man...