Memorandum submitted by GBAC
The Committee would be interested to hear views
on:
— The threshold of an annual turnover
of £25 million for applicants;
£25 million seems reasonable—anything
about this level is considered "Larger Business" by
the major Banks.
— Whether the amount of money available
is reasonable to enable businesses to continue operating;
An assumption must be made that any funding
goes to viable businesses, in which case the funding "pot"
availability seems reasonable.
Should funding creep into supporting non viable,
failing businesses, then availability needs will increase.
— Whether loan guarantees are the best
method of addressing the difficulties in businesses accessing
finance and, if not, what is the best method?
The major Banks, under liquidity restraints,
will only support relatively low risk projects—and with
a 25% residual risk under EFG's there is likely to be less enthusiam
by a lender than the schemes objectives may require.
The loan guaantee schemes are good—but
could really have enhanced beneficial effect if a wider range
of providers participated.
Example: within all geographic areas there are
Local Authority Economic Development Units/Local Enterprise Agencies/Chamber
of Commerce's/Specific business support entities. These "social
enterprises" could be a potential portal for delivery of
SME funding, utilizing government guarantees.
Such funding would be available as "gap
funding"—backing the viable projects that can't quite
get enough from Banks.
— To what extent the loan guarantee
will encourage new lending by banks;
See above—we see little evidence of proactive
appetite by the Banks in promoting the EFG schemes and agreeing
new lendings.
— The extent to which banks are making
this scheme available;
As above.
— Whether businesses in some areas
of the UK have more difficulty in accessing the scheme than businesses
in other areas;
Some areas definitely have easier access to
funding support—example, South Yorkshire with its SYIF gap
funding provider.
— Whether applying to the scheme creates
an administrative burden on those applying;
In today's hectic world, anything that requires
time away from the grind stone is construed as being administrative
burden.
This could be eased by subsidising the preparation
of business plans and applications using professional support.
— Whether the scheme has been effectively
promoted to the private sector;
Not really—but the embedding of the scheme
has not been helped by the initial luke warm reaction of the Banks—and
their ongoing reticence to use it.
— Any other views stakeholders think
the Committee should be aware of.
Business success is not exclusively due to funding—and
lack of funding is not exclusively due to Banks tight liquidity.
Many SME/owner managed businesses are run by
competent people within their industry—but financially unsophisticated.
This lead to a lack of clarity regarding positionaing funding
requirements. evidencing viability of business—and this
in turns leads to a lack of confidence to an application by a
lender.
For our South Yorkshire based businesses we
are able to obtain subsidies to undertake "Financial Health
Checks" on businesses—producing action based reports
to steer businesses to be stronger.
These reports form the basis of funding applications
and highlight the strengths of the business and also the actions
to be taken to improve any weaknesses.
They give some confidence to lenders.
Such a scheme could be rolled out nationally—which
would increase the success of present business support initiatives.
May 2009
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