The UK’s six largest banks have put forward their plans for boosting the funding of smaller businesses.
Central to the plans is a £1.5 billion growth fund.
The money, which represents about 0.1 per cent of UK GDP, would be invested in firms over a period of years. The fund would buy up to a 10 per cent equity stake in the shares of companies with an annual turnover of between £10 million and £100 million, and with a capital borrowing requirement of between £2 million and £10 million.
In a paper presented to the Chancellor, George Osborne and Business Secretary, Vince Cable, the banks’ Business Taskforce also proposed a list of initiatives aimed at increasing the flow of credit to SMEs.
The banks involved in the Taskforce are Barclays, Royal Bank of Scotland, Lloyds Banking Group, Standard Chartered, HSBC and Santander.
Initial discussions had seen the banks asking the government for the investment of some public funds in the scheme, but this demand has now been dropped.
Instead the money will come entirely from the banks, although they have said they would welcome additional shareholders to the fund and will offer ministers the chance to nominate a representative to sit on its board.
Some of the main points in list of new initiatives include:
Supporting a network of business mentors for small businesses across the UK;
Improving service levels to micro enterprises by setting out in a new Lending Code the levels of service banks will provide and outlining additional sources of help and advice;
Publishing lending principles which clearly set out the minimum standards medium-sized and larger businesses can expect when asking banks for loans and other services;
Establishing transparent appeals processes when loan applications are declined, to be monitored by a senior independent reviewer;
Starting a pre-refinancing dialogue with firms 12 months ahead of any term loan coming to an end;
Supporting the government’s Enterprise Finance Guarantee Scheme;
Helping mid-sized businesses access syndicated debt markets;
Improving access to trade finance through targeted SME awareness-raising campaigns and exploring possible regulatory adjustments with the FSA;
Signposting alternative sources of finance, offering advice if a loan is declined and raising awareness about the financial solutions the business should consider;
Publishing a regular independent survey, commencing in early 2011, so there is an agreed and authoritative set of data on business finance demand and lending supply;
Holding regional outreach events throughout 2011 with business groups to bring together business owners and key staff from the banks;
Hosting a dedicated website through the British bankers Association (BBA) to draw together and link useful sources of information;
And establishing a Business Finance Round Table where senior representatives from the banks and business groups meet regularly to discuss and review trends, identify emerging areas of concern and ensure problems are addressed.
John Varley, chief executive of Barclays and chairman of the taskforce set up by the banks to review finance to small businesses, said: “As banks we have an obligation to help the UK economy return to growth. The private sector will play a key role in the recovery and it’s our job to help viable firms to be successful.”
A joint statement issued by Mr Osborne and Mr Cable said: “This is an important first step and we welcome it. It is important that the banks now deliver on these plans.”
Business groups, too, offered a generally warm support.
Matthew Fell, the CBI’s director of competitive markets, said: “These proposals will make a positive contribution to the financing of British business, which is essential for economic recovery. The measures represent a welcome step forward from the polarised and unproductive debate about lending to business.
“The establishment of a Business Growth Fund will make a helpful contribution to the financing of small companies. It is the sort of scheme that we have been calling for.
“The independent quarterly survey will not only help to monitor the success of these measures, but also provide policy makers, banks and business with useful intelligence to help inform their decision-making.”
David Frost, director general of the British Chambers of Commerce, said: “We are pleased that the Business Finance Taskforce has recognised that the banks can, and must, do more to help small- and medium-sized businesses. It is absolutely essential that the service provided to business customers is improved, so that they can swiftly secure the financing they need to invest, grow and drive the recovery.
“The proposed Business Growth Fund will be welcomed by the minority of SME businesses seeking equity investment. But we need to remember that many businesses are not seeking equity investment – so the improvement of lending processes and business-bank relationships must be the focus of any reform effort.
“Time is of the essence. The faster these reforms are implemented by the banks, the faster confidence will return to the companies that will drive the UK’s economic recovery.”
John Walker, national chairman of the Federation of Small Businesses, added: ”Many of the measures announced will give businesses a better understanding about what they should expect when they approach banks as well as an independent right of appeal if they feel they have been treated unfairly.
“This will help to restore confidence and trust that has been lost for both those who can’t access finance as well as those who are wary of approaching the banks.”