Banks are not lending enough to small firms, MPs warn

Margaret Hodge, chairs the Public Accounts Committee

Margaret Hodge, chairs the Public Accounts Committee

First published in Business News The Northern Echo: Photograph of the Author by

SMALL firms are struggling to access finance despite Government attempts to encourage lending, ministers have been told.

A report by a committee of MPs said the Treasury and the Business Department had not done enough to raise awareness among small and medium sized enterprises (SMEs) of the financing options available to them.

The departments cannot demonstrate the success of schemes, even though almost £3bn of financial support will be given from 2011/12 to 2014/15, said the Public Accounts Committee.

Margaret Hodge, who chairs the committee, said: "Small and medium-sized enterprises have a vital role to play in driving the UK's economic recovery, but despite Government attempts to encourage lending to SMEs many still struggle to access the finance they need.

"At the time of our hearing overall lending to SMEs was down. Net lending by banks participating in the Funding for Lending scheme has declined by £2.3bn since the scheme was launched, and the number and value of loans backed by the Enterprise Finance Guarantee fell each year between 2010 and 2013.

"Departments manage their various schemes not as a coherent programme but simply as a series of ad hoc initiatives.

"There is no common understanding about which parts of the SME sector are generating the most growth and where government support would do most good. Departments were therefore unable to demonstrate that they are achieving best value for taxpayers money."

The MPs recommended that the establishment of the British Business Bank should be used to manage schemes as a coherent programme.

Ted Salmon, North East Regional Chairman, Federation of Small Businesses, said: "Recent FSB research shows hundreds of schemes available to support small and medium-sized businesses, but no clear mechanism for evaluation, co-ordination or communication in the North-East.

"At the central Government level the FSB agrees the British Business Bank should be the mechanism to simplify existing Government lending schemes and believes it should also provide information about alternative lending to small firms.

"There is no doubt that small businesses play a massive role in the North-East employing 333,000 people and contributing £24bn to the national economy.

"The Department for Business, Innovation and Skills needs to clarify what the success measures are for existing schemes as well as for new schemes that are introduced. We believe this must include total increased lending as well as how the schemes fit with each other.

"Above all, the British Business Bank must look at how these schemes are communicated to business so that small firms have much more awareness about the schemes which are available to them."


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