Bosses fear being penalised if they seek aid

Mar 16 2009 by Iain Laing, The Journal

THE Government and banks could do more to support small businesses struggling to cope with the recession and credit crunch, says a survey by the Forum of Private Business (FPB).

Not one respondent believes bank support is better. Half see no improvement and half say it is getting worse.

In addition, despite measures to stimulate lending to small businesses, 59% say support from the Government has not improved and 35% believe it has deteriorated.

Only 5% believe the Government is providing better support. An issue for business owners is lack of information about the Government’s Enterprise Finance Guarantee (EFG) scheme, unveiled last January as “real help” for business. In all, 54% of respondents are concerned at lack of information on the scheme, 32% believe it has too much bureaucracy, 27% think their bank will want more security and 27% that lenders will demand extra fees.

In addition, 27% believe inquiring about EFG will encourage lenders to see the business as a high risk.

FPB chief executive Phil Orford said: “Our fifth Economic Downturn Panel survey highlights the continued disparity between falling interest rates and the actual cost and availability of credit. Our members believe that they are perceived as high risk and that their banks are taking advantage by keeping rates high, increasing charges and requiring more security.

“These issues have been made worse by the confusion and delays surrounding the numerous credit stimuli launched to date.

“It is vital that both Government and the banks raise their game to ensure that their public commitments to deliver additional funding are properly understood and promoted at a regional and local level. They have a duty to deliver these funds urgently.”

Another major concern for small businesses is how lenders assess and manage risk. No panellists reported better risk management, while almost half believe it has deteriorated. The FPB is concerned lending applications submitted by small firms are not being gauged accurately because of a lack of experienced bank mangers in the regions who are able to build relationships with business owners and judge them case by case.

Other issues considered barriers to using the EFG are that bank managers themselves do not understand the scheme (22%) fears that borrowing might become restricted (20%) and the steep cost of finance (17%).

Since the previous panel’s findings, the deterioration of the general business climate has slowed. But so far this month, no small firm has found it easier to get finance.