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By Shaun Lowthorpe Business editor
Friday, August 3, 2012
Government plans to boost lending to businesses are unlikely to succeed because banks are under too many restrictions to lend, a Norfolk accountancy firm warned yesterday.
Chancellor George Osborne this week unveiled the £80bn Funding for Lending scheme aimed at making cash available to banks on condition that the money is passed on to businesses.
The scheme is set to supercede the much-vaunted National Loan Guarantee Scheme, known as credit easing, launched in March, which had offered cheaper loans to businesses, but comes amid increasing frustration among the government and Treasury officials at the failures of banks to lend.
That has even sparked suggestions that the government could fully nationalise the Royal Bank of Scotland to help boost lending to companies, though Mr Osborne is said to be opposed to such a measure.
However, Chris Bidgood, corporate finance director at LEES Accountants, which is based in the Broadland Business Park, near Norwich, said the problems stem from the restrictions placed on banks by regulators and shareholders which means in many cases they cannot lend because they have to meet targets to build up their balances.
The firm is part of a the national Corporate Finance Network, which is lobbying the governemnt to introduce a three point plan to help smaller firms.
Proposals include: Extending tax breaks for business acquisitions to include existing smaller firms; more transparent lending contracts with banks and replacing annual overdrafts with longer term facilities; extending interest rate incentive scheme to less traditional financiers such as independent asset based lenders and crowdfunders.
He said 90pc of deals currently being done in Norfolk rely on vendors agreeing to defer payments typically over a two year period because the purchaser cannot raise the finance in one go.
“The lending environment has changed forever,” he said. “Trying to fix problems with old solutions of traditional lending just won’t work any longer, and the government need to look at completely different approaches if they want to boost the economy and help small and medium sized businesses.”
Martin Lake, chairman of the Mid Norfolk branch of the Federation of Small Businesses said the jury was still out on the new proposals, but he hoped it would go some way to kick-starting lending to small firms which need credit to grow.
“Time will tell,” he said. “The banks are businesses too, and will be looking to see what’s in it for them as delivery partners. If the answer is ‘not a lot’ then I can’t see the banks being keen to offer this product first. It is vital that we have tangible evidence to show that money is being passed on to small firms and not just to shore up the banks.”
Caroline Williams, chief executive of the Norfolk Chamber of Commerce, said the government needed to consider more readical measures and the real test of the measures would be whether it extended beyond businesses who would have received it in the first place.
“The creation of a state-backed business bank would help companies that have been unable to get credit from banks, so they can start-up, invest, expand and create jobs,” she added.
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