Small Talk: Stalemate over new bank is disappointing

Wednesday's Autumn Statement looks set to see another chance to boost small and medium enterprises go begging. Despite months of discussions, it's almost certain George Osborne will not be able to unveil the blueprint for a state-backed business bank. The Chancellor and his officials have apparently failed to reach agreement with Vince Cable's Department for Business on the detail. This is unhelpful, for the arguments over bank lending to SMEs have reached a stalemate.

In one corner are the banks. On Friday, the British Bankers' Association released data showing that only a small number of the 117,000 applications from SMEs for loans or overdrafts made in the third quarter were rejected. Approval rates were above 80 per cent for the smallest businesses, rising to above 90 per cent for larger SMEs. Some £6.2bn was lent, the BBA crowed, up from £5.9bn in the second quarter.

Yet almost simultaneously, the independent research group paid by the banks to monitor their relationship with SMEs was reporting a deterioration in small businesses' ability to get credit. Just 40 per cent of companies with fewer than 250 employees accessed any form of external credit over the three months to the end of September, said Business Monitor. That's the lowest figure for almost three years.

Business Monitor said the dip was partly explained by SMEs' cautiousness in the face of certainty – the BBA also reports higher repayments of existing credit, which drag down net lending – but just as important was a perception among businesses that the banks would say no to borrowing requests.

It's difficult to get at the truth of the matter. We just don't know how many SMEs are wrong in their assumption that their borrowing requests would be rejected.

The more important question is how we break the logjam, and it is here that the delay to the Business Bank is so disappointing. For a state-backed institution of this sort has an opportunity to be a powerful force for change.

For one thing, the Business Bank is expected to be a new source of credit. The idea is that it would take SME loans off the banks' hands, parcelling them up for sale on the bond markets. That would enable the banks to make more loans than is currently possible.

The Business Bank would also have a secondary – just as useful – role. Set up in the right way, it could operate as an advocate for SMEs and a competitive threat to the retail banks.

The Business Bank could act as a bridge between two groups that seem incapable of resolving their differences without some help. SMEs do not trust the banks and the banks have become exasperated at criticism of their record.

If Messrs Osborne and Cable can't reach agreement in time for Wednesday's set-piece, they need to redouble their efforts thereafter.

Firms at risk because of lack of flood protection

Small business groups are urging the Government to reach an agreement with insurers over flooding cover after the floods in recent weeks. While attention has been focused on devastated families, many small businesses have had to stop trading – and been warned that they may be unable to buy cover in the future.

While larger businesses are often able to negotiate individual deals with insurers, SMEs struggle to get contents and buildings cover that extends to flood risk. Business interruption cover, which pays out for loss of revenue during a period when an SME is unable to trade, is a particular problem.

The Association of British Insurers estimates that as many as 80 per cent of SMEs forced to stop trading for a period by a disaster such as flooding will go out of business in the following 18 months.

"It is unacceptable that small firms are paying out what could amount to tens of thousands of pounds because they can't get adequate insurance protection," said John Walker, chairman of the Federation of Small Businesses. "Nor is it acceptable that flood defences aren't robust enough to withstand the rain."

Small business-man of the week: Sam Barnett, founder, Struq

The idea for Struq came from a conversation with my mother four years ago. I was in online banner advertising at the time and she asked me to explain what I did for a living – when I did, she said, 'You mean those things everyone just ignores?' I was a bit crushed, but it made me realise that I could do something much more personalised and valuable to advertisers.

"I launched the business in 2008 just as the financial crisis struck and it was very tough. We couldn't raise capital and in a recession, people's advertising and marketing budgets are the first things to get cut. We almost went bust four times, but that experience really built the DNA of the business – I know from building my own business how important it is for marketing to generate sales.

"We persevered and our clients now include people like Nike, Hilton Hotels and Topshop. We're opening offices in new territories all the time. Our aim is to personalise the ads that every user of the internet runs into – not just who gets which message, or the words that are used, but things like colour and background too. Internet users make 5 billion online decisions every day for people like Struq to learn from and our algorithms take in 12,500 different data sources – everything from how long you spend looking at something online to what the weather was at the time you made a particular purchase.

"We want to push the boundaries of what is possible with our technology – in the future, I want every ad you encounter each day, whether on the Tube, on a billboard or online, to be truly personalised and useful to you.

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