All very commendable. And any initiative able to fiscally recharge the coffers of those hard pressed SMEs has to be welcomed.
But we said this about Project Merlin. And the National Loan Guarantee scheme. And more recently the Business Bank. While it’s too soon to say yet whether the latter will be successful – simply for the fact the it won’t launch for another 17 months – there’s an underlying message here.
And that is that despite concerted efforts from Government, the banks still aren’t lending to business customers. This latest initiative bears this sentiment out.
That’s not to say though that this latest initiative is doomed to failure. We need to give a chance and let it pan out before we make any hasty snap judgement.
It has to be done properly though. That means it’s vital for those big businesses who take part to make sure the money goes all the way to the bottom of the supply chain. Those are the smallest businesses that would most benefit from the better credit rating of larger organisations.
There’s also the fear as well that large firms will abuse the system by making it a pre-requisite for suppliers who use the system to accept longer payment times. Frankly it’s not inconceivable that big business will want something back for their help – there’s no such thing as a free lunch, goes the old saying.
And then of course there’s the case that this will mean big business also feel less compelled to pay promptly. Why, if the banks are happy to step in, will firms want to pay quickly.
This would be a double kick for SMEs. The lack of lending is one of the main barriers to business, hence the reason why we see initiatives such as supply chain finance. We also know that late or slow payment is a massive problem for small businesses. This would mean small businesses swapping one debilitating barrier to growth and jobs for another.
There are quite a few ‘ifs’ and ‘buts’ to these concerns, but they are real concerns nonetheless, and knowing the way big business operates, sooner or later cases like this will emerge.
Ultimately, and we can’t escape this fact, what we need is the banks to resume lending. And not just lending, but relationship banking with business customers too. Because until that happens, no matter what type of scheme the Government of the day dreams up, the economy will not be able to fully heal.
