To put FLS in real terms, for every extra pound banks lend to small businesses in 2013, they can borrow £10 of cheaper money. The banks will only be able to obtain that money if they are lending more than is being paid back (that is overall, not just to small business), which conspicuously three banks failed to achieve last time they were measured.
Eagerly then we await the results on 3rd June, which will indicate if lending is increasing to businesses.
So what if it doesn’t?
Well first of all there will be some political posturing. The Labour Party will blame the Government, the Government will blame the banks and the banks will say there is a lack of demand. And to a degree there is, but there is also no denying that some sectors are facing difficulties in accessing finance. It may well be a bank relationship manager has the authority to lend up to £250,000, but not if the internal bank systems still say no.
After the dust has settled small businesses are no further forward than before. So how to improve the situation?
Here are three suggestions:
Firstly, the government could actively encourage challengers to take on branches due to be left by existing banks. The Forum of Private Business and the Campaign for Community Banking Services have long urged the Government to pressure the UK’s big banks to share local branches as a solution to spiralling bank closures. Analysis shows that more than 7,500 branches have closed since 1990 and the impact of closures on communities and businesses is in danger of being overlooked.
Second, they could get tough on the appeals process launched by the banks in 2011. In theory, once a business is turned down for a loan they will be told of the right to appeal. In reality, around 10% of businesses say they recall being made aware of that right. There are a number of positive ideas floating around as to how this awareness might increase but action is surely needed soon.
- Thirdly, rather than seeking new finance, measures could be taken to free up existing cash flow. At present there is £37bn tied up in late payments. That equates to just 5% of the £750bn estimated to be sitting unused on company balance sheets. If we can encourage a prompter payment culture that 5% would be all but wiped out and swilling around businesses instead of lying dormant.
Finally, of course, there is always the chance we could actually see some sizeable growth and confidence return without intervention. Businesses could then feel the time was right to expand and recruit and queues would start forming to borrow money from the banks.
Oh how we all wish it could be that simple!