David Prosser: 'The offer of unaffordable credit is as useless as the offer of no credit at all'

Analysis

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.

News
Alex Salmond said he accepted 'the democratic verdict of the people'
newsSNP leader says Scotland must move forward as 'one nation'
Arts and Entertainment
Friends is celebrating its 20th anniversary this year
tvSeries celebrates 20th anniversary
Sport
Yaya Touré (left) and Bayern Munich’s Spanish defender Juan Bernat
footballToure's lack of defensive work is big problem for City
Voices
voicesApple continually kill off smaller app developers, and that's no good for anyone
PROMOTED VIDEO
Arts and Entertainment
Liam Neeson said he wouldn't
tv

Liam Neeson's Downton dreams

Sport
Wembley Stadium
footballNews follows deal with Germany
Arts and Entertainment
A spell in the sun: Emma Stone and Colin Firth star in ‘Magic in the Moonlight’
filmReview: Magic In The Moonlight
News
ebooksAn unforgettable anthology of contemporary reportage
Sport
A 'Sir Alex Feguson' tattoo
football

Arts and Entertainment
Ben Whishaw is replacing Colin Firth as the voice of Paddington Bear
tv

Thriller is set in the secret world of British espionage

Life and Style
life

News
ScienceGallery: Otherwise known as 'the best damn photos of space you'll see till 2015'
Life and Style
fashion

Bomber jacket worn by Mary Berry sells out within an hour

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Audit Manager Central Functions

To £85,000 + banking benefits: Saxton Leigh: You will be expected to carry out...

Credit Risk Audit Manager

Up to £90,000 + benefits: Saxton Leigh: Credit Risk Audit Manager required to ...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week