Forum welcomes Government’s Finance Fitness plan

10 November 2011

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The Forum of Private Business has welcomed the Government's new Finance Fitness campaign, which seeks to improve small businesses cash flow issues, but the lobby group says it remains down to banks to deliver on their pledge to increase lending, without which any assistance is pointless.

The Finance Fitness scheme, launched by Business Minister Mark Prisk, aims to help small firms assess and improve all areas of business finance. It will see Government offering SMEs advice on cash flow management, and the importance of maintaining a good credit rating for lending purposes.

While the Forum says any additional support for SMEs, particularly from Government, is a step in the right direction, it believes banks must also play their part by increasing lending, reducing borrowing costs, ending early repayment penalties, and returning to localised decision making on lending.

The Forum's Senior Policy Adviser, Alex Jackman, said: "In an economic environment characterised by continuing credit restrictions, clear and thorough financial information is demanded by the finance and credit industry to assess risk.

"Any help for businesses to maximise their chance of getting a ‘yes' from their bank manager is clearly welcome news for SMEs, and sends out a positive message that government understands enterprise is the key to getting the economy back on track.

"But while it remains unsustainable for lenders' decisions on creditworthiness to be made centrally using over-centralised risk aversion criteria, business owners should be proactive in controlling their own destinies. Reacting to the demands of lenders by providing thorough financial projections, with up-to-date, accurate financial information is a sound basis for that.

The Forum is still calling for greater collaboration between banks and businesses and a return to proper relationship banking. This is would help ease the punitive risk criteria lending we have seen in recent years, and subsequently bring down lending costs."

The Government's new scheme will also see firms made aware of alternate sources of credit, as opposed to the usual high street lenders. Advice will also be offered to business on issues around late payment, the amount of time small firms are waiting to get paid by their customers, the impact this has on businesses, as well as advice on how to get paid on time.

Mr Jackman added: "It's high time that the Government put the spotlight on the importance of businesses' finances.

"Many small businesses only approach banks for funding when cash flow is at its lowest, which of course is the worst time to negotiate a good deal. Solid advice from those who represent business, coupled with a government drive to raise awareness, will help small businesses to better manage their finances in tough economic times and reap the benefits of better credit scores and improved invoicing processes.

"Of course, concrete Government action in the area of late payment would be even more helpful, and the Forum will use the opportunity of a spotlight on financial readiness to lobby for more to be done to tackle this issue."

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