The government has been told that it needs to boost alternative sources of capital, such as private placements of debt and pooled loan funds if it is to be able to plug the shortfall in credit that is being faced by SMEs. This is expected to have risen to around £190bn by 2016.
Tim Breedon is the CE of Legal & General, and he has headed a government sponsored report in various financing options for those businesses who have historically relied on lending from banks. He proposes that a loan aggregation agency be set up ease the funding needs of those businesses that are too small to access the large pools of capital that are available to corporations and the like.
Vince Cable set up a task force in 2011 to take a look at the access SMEs had to the credit that they needed for both growth and innovation, what we are being told is the key to the country’s economic recovery. The report has noted that recent applications for bank loans remain poor, with only 9% of SMEs seeking finance in the year that ended in Q4 of 2011 as business lenders have scaled back investments to cut their costs.
There is, however, ‘compelling evidence’ that the problems of supply and demand within bank lending will only continue to increase as businesses continue to gain confidence and the need to continue funding working capital rises, yet banks are continuing to deleverage their balance sheets.
It is estimated that come the end of 2016, the financial gap could be between £84bn and £191bn, and this is the amount that is potentially needed to comfortably meet both the growth needs and the working capital of the non- financial business sector in the UK. Of this total, around £26-£59bn is thought to relate to the smaller businesses.
This report comes only days before the Budget when the chancellor, George Osborne, is expected to flesh out the loan guarantee scheme that is designed to provide discount lending of up to £20bn, and also cut the lending costs of small businesses by up to 1%.