Friday, July 19, 2013

SMEs can’t access finance? Where’s the evidence?

Hot on the heals of Labour’s incompetent business secretary (Peter Mandelson), we are now blessed with the Tory/Lib Dem coalition’s incompetent business secretary (Vince Cable).
Vince, like most Westminster politicians, is obsessed with lending to small and medium size businesses.
So where is the evidence that difficulty in accessing finance is a major problem for SMEs? Well the Department for Innovation, Business and Skills does regular surveys of SMEs, and the figures below are copied from their 2012 survey (p.80). Figures are percentages of employers surveyed.


As you can hopefully see, “obtaining finance” does not come high on employers’ lists of problems. Admittedly the percentage of employers citing finance as a problem has more than doubled since 2006 (i.e. prior to the onset of the credit crunch). But then the proportion of employers citing “the economy” as a problem more than TREBBLED. So “the economy” is a problem that SMEs think has deteriorated a lot more that the finance problem since the onset of the crunch.
Moreover, according to the above evidence, “cash flow” is not a problem which seems to have grown, and cash flow could be categorised as a “finance” problem. That is, cash flow problems can always be ameliorated by obtaining more finance.
So if we take the total figures for “obtaining finance” and “cash flow” and add them together, the combined total has nowhere near even doubled since the onset of the crunch.
But there is yet more cold water to throw over the “lack of access to finance” story, and as follows.
Banks were clearly lending in too lax a fashion prior to the crunch: put another way, they have now reverted to a more responsible and realistic level of lending. Thus the above evidence of increased difficulty that SMEs have in accessing finance is no surprise at all: and it’s no justification whatever for any sort of artificial assistance for lenders and borrowers – “funding for lending” or whatever.
So I suggest that since “the economy” seems to be SMEs’ main problem, how about just boosting the economy in general and leaving it to borrowers and lenders to decide for themselves what constitutes a viable lending or investment project? We’re probably better off without politicians or Bank of England officials meddling in that sort of decision, as suggested by Simon Jenkins.

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