Cash boost for business owners ? A financial planning conundrum!

In a recent blog post, we highlighted the difficulty small businesses have been having in borrowing from banks.

Research at the time suggested 28% of small business loan applications were being rejected, and official figures released last week painted a similarly bleak picture.

However, help is at hand – with the Government set to hand a cash lifeline to Britain’s struggling businesses. That lifeline comes in the form of a bond scheme which will see billions of pounds lent to small firms directly by the Treasury.

Details of the scheme are currently thin on the ground, with an official plan not to be unveiled until the end of November. In essence though, small businesses will be able to raise funds by issuing bonds for the Government to buy.

This is positive news for businesses of course – but the scheme is not without its controversies. The project will need to be funded via a second wave of quantative easing, while the spend won’t even show up on Britain’s balance sheet thanks to some dubious accounting.

Of course the scheme is also a rather damning indictment on the Government’s failed attempts to kick-start bank lending. The ‘Project Merlin’ agreement between Government and banks appears to have amounted to nothing, leaving the Treasury with little option but to become the lender itself.

Certainly somebody has to do it – getting money flowing again between small businesses is fundamental if Britain is to dodge a second ‘credit crunch’.

Only time will tell as to whether this latest measure actually succeeds in assisting hard pressed UK business owners.

Our view is this, we cannot understand why this scheme is necessary, we understand the banks are not lending as they should. The remedy surely is simply to undo the unnecessarily harsh legislation regarding pension fund lending.

Legislation regarding how much and how you re-pay borrowing from your own pension has become unnecessarily restrictive and has changed from an interest only basis and being secured against a reasonably wide range of assets – to now having to lend as a first charge against (normally) a commercial freehold on a capital and interest basis over five years.

It would seem as though the government (although accusing the bank’s of restrictive lending and higher costs) are tarred with exactly the same brush. It would also seem that government agencies are working against the interests of business owners.

You do not need to start lending fresh money and placing the economy under more of a strain. The government simply needs to re-think and redress the changes it has made to  legislation.

We have our own strategies for assisting business owners – If you need some help, contact one of our Financial Planning Consultants. At Pareto Lawrence we offer both a financial planning service and corporate planning advice to business owners and private clients.

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