Memorandum submitted by Greater Manchester
Chamber of Commerce
Greater Manchester Chamber is the largest Chamber
of Commerce in the UK, with a membership currently standing at
around 5,300. The Chamber operates as part of a unique, leading-edge
model, and works with the Manchester Solutions Group of specialist
companies all dedicated to the economic development of Greater
Manchester.
The Chamber is recognised as a leader in its
field. Its reputation has grown in Government circles both locally
and nationally, as well as in the region and abroad.
The aim of Greater Manchester Chamber is to
create the best climate for businesses in Greater Manchester to
prosper. This can be achieved by ensuring those taking decisions
on key issues like transport, taxation and business regulation
hear the voice of our members. The representation of members'
views is central to the work of the policy team at the Chamber.
These views are gathered in a range of ways including focus groups,
the quarterly economic survey, meetings with politicians and consultations.
ENQUIRY RESPONSE
Summary
We have been collecting evidence from members
on issues regarding access to finance in various ways since February
2009. The effect and implementation of the Enterprise Finance
Guarantee scheme has been one of the areas we observed with special
attention.
When the scheme was first announced, it created,
with hindsight, unrealistic expectations for businesses. The Business
Link webpage at the end of January implied that the 75% government
guarantee would be available to protect the business rather than
the bank. Our members expected participating banks to supply loans
in a swift and efficient manner, without the need of additional
personal guarantees.
The scheme was launched on 14 January 2009,
replacing the Small Firms Guarantee Scheme (SFLGS) without providing
for a transitional period. Reportedly, by mid-February 2009 no
fully drafted requirements had been made available to lenders.
We have feedback from a member business reporting that their bank
advised them of the discontinued SFLGS scheme, but in early February
2009 could not provide any assistance under the new EFG scheme.
Also, during the first couple of months after the launch of the
scheme, bank staff did not seem to fully understand the application
process or criteria of the scheme, providing businesses with conflicting
and misleading information, which led to additional pressure and
frustration for businesses in an unprecedented, challenging economic
environment.
In the meantime banks seem to have consolidated
their strategy and trained their staff, but businesses now report
high loan costs, long waiting periods, demanding amounts of paperwork
and the need for personal guarantees. Businesses are disillusioned
and take up rate reportedly remains low.
We have listed a few examples from members,
that illustrate the points made above:
(1) A very telling example is a small IT start
up business, which in February 2009 had shown month on month
growth for over six months and a potential order book of
£250,000. The business, as well as the owner, had a clean
credit and payment history. Personal guarantees would have been
available. He applied for a £30,000 loan in order to
support the business growth, asking specifically for cover under
EFG. His bank did not even agree to process the application, and
he was told that they already knew it would be declined.
Since then he has secured finance under EFG through
a Community Development Finance Initiative (CDFI) and been identified
by the NWDA as a potential high growth business.
(2) Another member was refused the extension
of an overdraft facility but pointed down the EFG route. In April
2009 he had been waiting for a decision for four weeks.
(3) Another member reported in May 2009 that
it had taken months to arrange an EFG loan. In his words: "the
bank has been really unresponsive and we have had to complain
to more senior members of staff to get it moving. There is no
sense of urgency and no management of our expectation regarding
how long the process should take—when they e-mail to say
he is on the phone now with the department concerned for a decision
and then no contact for weeks, it makes it very hard to manage
a business and plan for growth."
GOING FORWARD
We are continuing to monitor the conditions
of access to finance for small and medium businesses. We are collating
evidence on a wider basis and are planning to present the full
results at an "Access to Finance Summit", to be hosted
by Greater Manchester Chamber of Commerce in autumn. We will bring
representatives from all interested parties together to share
views and experiences and look for creative answers.
We understand that this is a complex issue without
any quick fix solutions. For many businesses, however, time is
running out and we risk to lose a significant number of those
businesses who will be the backbone of economic growth in the
future.
March 2009
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