Small Talk: Bank finally using its toolkit to fine-tune financial stability

David Prosser

Successful policymaking requires both luck and good judgement. The small business leaders who got lucky last week in the rush to hear the first public speech from Mark Carney will have been delighted to hear the new Governor of the Bank of England appears to have both. Mr Carney was able to address the cream of Nottingham’s commerce armed with positive second-quarter GDP figures that arrived just as he settled into the hot seat, but he also offered them an important goodie.

The Bank’s announcement that it is to relax the liquidity requirements for eight banks and building societies that meet its capital strength tests could, Mr Carney suggested, free up as much as £90bn of funds that could be offered in additional lending for small businesses. It is the first instance of the Bank using the macro-prudential toolkit handed to it in the wake of the financial crisis for exactly this sort of fine-tuning of financial stability.

Not before time. Nationwide Building Society, the country’s biggest, confirmed last week that it has postponed its much heralded launch into the small business lending market. Though it will not say so publicly, reports suggest an explanation for the delay is Nationwide feels its finances are too constrained by regulatory requirements for it to launch the new venture.

The latest evidence on the flow of finance to the small business sector, meanwhile, paints a decidedly mixed picture. The good news is that small businesses do, finally, seem to be getting their hands on more credit. Market research company BDRC, which publishes its SME Finance Monitor quarterly, reported last week that 44 per cent of small businesses were able to access external sources of finance during the second quarter, up from 39 per cent during the previous three months.

Less happily, BDRC’s research suggests this additional finance hasn’t been coming from the banking sector – 33 per cent of small businesses said they borrowed from the banks during the second quarter, exactly the same figure as in quarter one. Rather, the flow of credit has picked up from alternative sources of funding – grants, invoice finance and self-finance, for example.

Nor do the Bank of England’s schemes to boost lending seem to be inspiring much confidence. Just 16 per cent of small businesses told BDRC that Funding for Lending and similar programmes would make it more likely they would seek bank credit – that’s down compared to the first quarter.

In that context, Mr Carney’s liquidity initiative is much-needed. However, the better-known forward guidance policy, the Governor’s boldest move since arrival at the Bank, may prove just as important to small businesses. As we tackle the supply of credit, we must also consider demand. The mindset of small businesses needs to change.

The banks have consistently argued that one reason for the low aggregate lending figures is that large numbers of small businesses do not want to borrow. And BDRC’s research supports that contention – three-quarters of small businesses describe themselves as “happy non-seekers of finance”.

However, there now seems to be broad agreement that the UK’s economic prospects are improving – albeit slowly. And with interest rates still at rock-bottom levels, those businesses that need to borrow in order to make the investments necessary to capitalise on the recovery have never had an opportunity to do so more cheaply.

Mr Carney’s forward guidance stance is designed to reassure business owners who don’t yet have the nerve to take the plunge. The Governor hopes his pledge that the Bank will keep rates low for some time to come will calm the nerves of two groups of business owners – those who believe the recovery won’t be sustained and those who fear it could be nipped in the bud by a premature rise in the cost of borrowing.

SyndicateRoom deals only in firms previously funded

Britain’s crowdfunding sector continues to develop rapidly, with new launches and innovations adding to the mix almost continuously.

The latest addition to the sector is SyndicateRoom (see, which, like several other crowdfunding services, offers a pool of private investors the chance to buy equity in the growing businesses listed on the site.

The twist is that all of the businesses on the site have already received some funding from business angels. The founders believe this will reassure many would-be investors – the idea being that professional investors with experience of having backed small companies have conducted due diligence on the firms seeking cash.

The launch is an interesting innovation for a sector still in its infancy – the next big question for the industry will be regulation, with the Financial Conduct Authority signalling again last week that it has concerns that not all investors understand the risks inherent in putting money into start-up businesses.

Burnley wins 2013 business award

Burnley is this year’s most enterprising town in Britain, according to the Enterprising Britain Awards 2013, a scheme backed by the Department for Business. The Lancashire town won the award for its efforts to back small, growing businesses – and to get the public to rethink perceptions of the former industrial stronghold.

The “Burnley Bondholders” scheme has seen more than 100 local firms pool their resources in a bid to promote the town as an attractive place to do business. So far, the scheme has attracted more than £10m of investment to the area.

Julie Cooper, the leader of Burnley Council, said: “We are building an innovative aerospace supply village in the former Michelin tyre factory, emphasising how we are transforming an old manufacturing site symbolic of Britain’s industrial past into a shining example of our country’s high-tech manufacturing future.”

Small Business Woman of the Week: Elizabeth Gooch, chief executive, EG Solutions

I launched my back office optimisation software company business in 1988. I’d always wanted to work for myself and suppliers kept telling me they needed someone to come into their businesses. The firm was self-financed and profitable from the start, initially as a consultancy and then, on the suggestion of my chairman, a software business, because we were effectively giving away our proprietary technology.

It was good advice – I’d brought him in as I really believe in adding to the skills base. You can’t possibly know everything yourself. We floated on the Alternative Investment Market in 2005 as we needed funding to continue growing. We were no longer a £1m-£2m a year business in terms of turnover and we kept bumping up against our bank overdraft limit.

Our turnover is now £5m and the next stage is to internationalise the business. We have won accounts from three large global banks. I was awarded an MBE in 2012 for ‘services to the financial services sector’.

Start your day with The Independent, sign up for daily news emails
Life and Style
Living for the moment: Julianne Moore playing Alzheimer’s sufferer Alice
Jay Z
businessJay-Z's bid for Spotify rival could be blocked
The spider makes its break for freedom
A propaganda video shows Isis forces near Tikrit
voicesAdam Walker: The Koran has violent passages, but it also has others that explicitly tells us how to interpret them
Ashley Young celebrates the winner for Manchester United against Newcastle
footballNewcastle v United player ratings
Arts and Entertainment
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Graduate Application Support Analyst

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Reach Volunteering: External Finance Trustee Needed!

Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

Christine McCleave: FP&A Analyst

£36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Day In a Page

War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable
Living with Alzheimer's: What is it really like to be diagnosed with early-onset dementia?

What is it like to live with Alzheimer's?

Depicting early-onset Alzheimer's, the film 'Still Alice' had a profound effect on Joy Watson, who lives with the illness. She tells Kate Hilpern how she's coped with the diagnosis
The Internet of Things: Meet the British salesman who gave real-world items a virtual life

Setting in motion the Internet of Things

British salesman Kevin Ashton gave real-world items a virtual life
Election 2015: Latest polling reveals Tories and Labour on course to win the same number of seats - with the SNP holding the balance of power

Election 2015: A dead heat between Mr Bean and Dick Dastardly!

Lord Ashcroft reveals latest polling – and which character voters associate with each leader
Audiences queue up for 'true stories told live' as cult competition The Moth goes global

Cult competition The Moth goes global

The non-profit 'slam storytelling' competition was founded in 1997 by the novelist George Dawes Green and has seen Malcolm Gladwell, Salman Rushdie and Molly Ringwald all take their turn at the mic
Pakistani women come out fighting: A hard-hitting play focuses on female Muslim boxers

Pakistani women come out fighting

Hard-hitting new play 'No Guts, No Heart, No Glory' focuses on female Muslim boxers
Leonora Carrington transcended her stolid background to become an avant garde star

Surreal deal: Leonora Carrington

The artist transcended her stolid background to become an avant garde star
LGBT History Month: Pupils discuss topics from Sappho to same-sex marriage

Education: LGBT History Month

Pupils have been discussing topics from Sappho to same-sex marriage
11 best gel eyeliners

Go bold this season: 11 best gel eyeliners

Use an ink pot eyeliner to go bold on the eyes with this season's feline flicked winged liner
Cricket World Cup 2015: Tournament runs riot to make the event more hit than miss...

Cricket World Cup runs riot to make the event more hit than miss...

The tournament has reached its halfway mark and scores of 300 and amazing catches abound. One thing never changes, though – everyone loves beating England
Katarina Johnson-Thompson: Heptathlete ready to jump at first major title

Katarina Johnson-Thompson: Ready to jump at first major title

After her 2014 was ruined by injury, 21-year-old Briton is leading pentathlete going into this week’s European Indoors. Now she intends to turn form into gold
Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot