Talking point: Funding a solution
Vince Cable says he will operate a “carrot and stick” approach to ensure that banks maintain lending to small businesses. He has accused the banks of not acting in the public interest and of charging “higher fees and increasing demands for security” to cover the risk of lending to SMEs. He also stated that “we would question whether banks should be paying out dividends and bonuses when that money could be used to support small business lending” and warned of a supply problem affecting loans to SMEs which would “intensify when the economy starts to grow”, thus blocking economic recovery.
BCRS already has a proven delivery vehicle in place that can offer loans to SMEs and has been doing so successfully since 2002. Our £5m small business loan fund will be extended to £10m within the next two years. BCRS was founded in 2002 as a not for profit loan fund offering loans of between £10,000 and £50,000 to small businesses in the Black Country. Last year, we created a £750k business loan fund with Sandwell Metropolitan Borough Council and are in discussion with other local authorities in the Black Country. We have now created a £1m loan fund with Staffordshire County Council and are looking to expand into Stoke on Trent.
BCRS is in an area where the multi-trillion pound commercial banking sector refuses to operate because it can’t make money out of it and the transaction costs for a £20k loan are similar to a £2m loan.
There is a high degree of risk involved in running a small business, whether it’s a start up or an established business. Business owners often don’t have secure assets. The banks say that demands for loans from the SME sector have been slack. That’s not surprising. If BCRS offered asset backed guaranteed loans in the way that banks do, we would then require our clients to put up all of their assets. But that is completely contrary to the BCRS ethos as a co-operative. We want to back enterprising people, not ruin them.
Vince Cable has stated that he is worried about the behaviour of the banks. They have already been given trillions of taxpayers’ money. How much more do they need? If the coalition government is serious about helping and encouraging small enterprises and innovators, they can do worse than looking at the model we have created here in the Black Country - a workable solution based on mutual principles that can help make the Black Country great again. And the time is now if we are to encourage economic recovery.
Paul Kalinauckas is chief executive of the Black Country Reinvestment Society (BCRS)
