THE government’s £1bn loan guarantee scheme for small business was meant to be a ripcord for a key section of the economy in freefall.
Trouble is the evidence so far is that when small and medium-sized businesses (SMEs) have pulled it the parachute hasn’t opened.
Hard figures are a little difficult to come by. But anecodotal evidence suggests at the very best some low tens of millions of pounds have been lent under the government scheme by the banks.
Nothing like the £100m-plus that many independent experts believe would be necessary to make a meaningful difference to the SMEs and the economy.
Both the Confederation of British Industry and Federation of Small Businesses have said they are not seeing virtually anything on the ground to show the loan guarantee scheme working.
The government has led the banks to water but they won’t drink. Even with guarantees in place it seems the banks have other priorities at present than lending to SMEs.
It is allied to the other issue of p
oliticians wanting the banks to lend but banks being more keen to repair their balance sheets.
With each new shock out of the sector’s woodshed, currently running at about one every day or two, that caution on the part of the banks will remain _ even with Whitehall as a backstop to safeguard those loans.
Developments like Friday’s bombshell from Lloyds TSB that HBOS has made a £10bn loss for 2008 _ much bigger than Lloyds and the market had expected even a few months back _ will do nothing to make banks cleave to the government loan guarantee scheme.
The Department of Business has not cleared the air on this issue, currently refusing to say how many businesses have been helped under the scheme.
Barclays has said it has lent £12m but that is a drop in the bucket. RBS, nearly 70 per cent owned by the government, will only say it is processing applications.
This is a serious issue where banks need to pull their finger out as quickly as possible.
The CBI’s latest gloomy survey, suggesting the economy will shrink by a chastening 3.3 per cent in 2009, compared with a November forecast of a 1.7 per cent decline, shows there is no time to be lost.
The £1bn loan guarantee scheme was launched with much political fanfare to show the government meant business in every sense. They need to twist banking arms some more.
