Your Thoughts - Banks announce £1.5Bn Growth Fund

[Scottish Business Owner]

This has been trumpeted in the news over the past few days. You can see the link to the bBC article below.

BBC News - UK banks propose £1.5bn fund for small businesses

What's made me really mad about this is that the media and government have said this is designed to help small businesses. When you read into things further it seems to appear that they will only invest in businesses with a minimum £10 million turnover. I'm not sure I know many small businesses who have that amount of turnover!!!!!!!

Some of the so-called pressure groups have actually welcomed this move which really stinks to me. £1.5Bn is a drop in the ocean compared to what banks need to lend and should be lending. It seems ok for them to pay massive bonuses (including one who is almost 80% owned by the UK tax payer). The cynic in me says this "fund" is just lip service to try and get the government on side a little and to show them that they are actually trying to do something. For me though it's nothing more than spin and PR.

Thoughts?

 

[johnthesearcher]

Great point

Like most of the SME sector who are probably about ..... 9. something millions short of the qualifying criteria .... I too find that despite all the 'hollow' promises from the decision makers they seem hell bent on a policy designed to appease the large organisations and overlook the SME sector.

What next .... an e book written entitled "How to flip your home and get away with it"
by W. Atchandweep, a budding author and retired financial advisor.

John

 

[Gouldie0]

Hi ,

I totally agree that this is just PR and spin, for example here is Companies House definition of a small business:

Accounts and accounting reference dates ? GBA3

To be a small company, at least two of the following conditions must be met:

* annual turnover must be £5.6 million or less;
* the balance sheet total must be £2.8 million or less;
* the average number of employees must be 50 or fewer.

Does this not prove that the banks are failing to lend? I mean if they were lending why would they need to create a 'small business lending fund'?

I think this goes against everything this so called government has asked them do i.e. lend to small businesses. The kind of businesses who need overdrafts to get them through a slightly lean spell, the businesses who aren't turning over millions of pounds.

The banks continue to talk about helping customers, developing long and meaningful relationships but all I can see at the minute is them continuing as they were before - Generating massive profits and not offering value for money. Just wait until annual results time next year, these banks will once again be presenting billion pound profit figures and lining there shareholders pockets, while customers continue to struggle with the rise in living costs and government cutbacks.

Something needs to change because the banks aren't lending and the Conservatives certainly aren't the answer to this countries problems.

:cursing:

 

[shredder]

My worry about this is that on the one hand the government want the Banks to take less risk but on the other hand to increase lending to SME's.

Banks are required by the FSA/Basel 3, etc to hold cash reserves for each new loan they make and risky loans require a greater amount of reserves to be set aside. Cash held in reserves is not availiable for lending and SME's are probably the most risky sector to lend to which results in a less availibility of money and higher costs.

Not wishing to defend the Banks but they are in a no win situation, they must comply with FSA and Basel requirements and at the same time make more risky loans.

For SME's requiring funding raising new equity may well be the answer - even if it is provided by the Banks through this new fund, however, it will be expensive money - they want at least 10% of your business and will want to sell out in 5 years. I wonder if they will be happy with pure equity or whether they want equity/warrants and provide the cash via debt charging an interest rate on top of the shares. Can you imagine having a bank shareholder on your board of directors Equity is about risk taking and banking is about risk avoidance how can you have a Bank acting as an equity holder and not have conflict? Will they also want to charge annual directors fees etc? I dont think there is enough detail in the report to know if its a good or a bad idea. (See this link for a copy of the report issued by the BBA BBA - The voice of banking and financial services - Media - Article - Business Finance Taskforce )

For small businesses concepts like Funding Circle and other crowd sourced schemes look very interesting. They seem to be making loans of 30-40k over 1- 4 years at reasonable interest rates to SME's - Id be interested to know if anyone here has thought about using them.

 

[Scottish Business Owner]

I'm not suggesting for a minute that banks aren't in a difficult situation. My whole issue was with the definition attached to a small business.

Actual small businesses will definately have to look at other ways to fund their businesses because bank simply wont lend. I know this first hand. I dont see what makes a business turning over £5 million any different from a business turning over £50 million. Isn't turnover vanity anyway????

TUC claims banks will offset losses to avoid billions in tax - Herald Scotland | Business | Corporate & SME

You then read articles like the above that riles me even more. OK most businesses would offset the losses but in this instance I would suggest this is immoral. Do banks seriously think they've paid enough for the mistakes they have made?

Why is this fund being dressed up to be something that it isn't. It wont help that many businesses and I think people who welcome this with open arms are actually deceiving small businesses into thinking that this is good for them.

 

[Aillum]

It's all a strange situation. I've only recently started my business and only did so once I had saved enough money in a slush fund to delay any request for funding that I may need to make to the bank in future. The fact that there is such a level of mistrust, regardless of the figures being discussed, is a worrying point for me.

I do appreciate and understand the notion that we have to attract good bankers, therefore can't punish them to much, but I do also believe in the old phrase of "if the punishment fits the crime". I can't help but think the lack of hard punishment is only going to result in the banks finding other ways to take risk, rather than encouraging them not to take risk at all.

 

[shredder]

I dont see what makes a business turning over £5 million any different from a business turning over £50 million. - This is a very interesting point, bearing in mind that they are proposing an equity fund and will be taking shares in the business they invest in, I bet the thinking is they will see a greater return from larger business than small business.

Also interesting to see that the TUC have actually got a tax consultant on board who seems to know what he is talking about, however, I think the bank levy will be used to balance the tax take from banks so they are not really getting away with using losses to reduce tax.

At the end of the day banks are a business I don't see anything wrong with them using losses to reduce profit whether immoral or not, no other business would pay more tax than they had to. Remember not all banks were bailed out by the taxpayer and I think politicians are quick to divert the blame for the current economic situations from themselves to the banks. We aren't putting any more money into them and the pain at the moment is to try and get public spending back to the level it was at only 3-4 years ago.