Time to help small businesses

We need to find middle ground between owners running businesses on their own credit card and a small business loan

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The Independent Online

The budget is almost here and the background noise about the economy has grown so shrill that most signals are being drowned out. But one aspect clearly not working well is the transmission mechanism from savings to investment.

There is money around, on balance sheets, in banks, and among many personal savers. The Bank of England has been spraying money around for the past three years. But net bank lending to the corporate sector remains negative – companies are running down debts faster than taking out new loans, and alternative ways of getting loans are limited. So expect a stream of new budget initiatives to try to unclog the existing channels in the banking system and to bypass the banks.

They deserve a welcome. This is surely a situation where you try lots of different things, hoping some make a real difference. But the conundrum for the Government  is that one of the riskiest forms of lending is to small businesses. So if you are urging banks to be safer, that is lending that rationally they should avoid. The story that worried me most recently is that because banks won’t lend to small businesses, a lot are running on the owner’s credit cards. There must be some middle ground between that and a small-business loan.