According to the Business Secretary, Vince Cable, bank lending to SMEs is being “suffocated” because the Bank of England is blocking reforms to regulations on the reserves lenders are required to hold.
Under current rules, these have to be higher for business lending than they do for residential mortgages because the former are seen as higher risk than the latter. The BoE also claims that the rules cannot be changed because they are set internationally.
Meanwhile the Government’s business bank has so far lent around £780 million and is experimenting with a scheme to underwrite commercial lending to SMEs with Government funds, welcomed by the BCC (British Chambers of Commerce) who want the business bank “radically scaled up” and strengthened.
While at last there seems to be general agreement that there is a problem with bank lending to small businesses there seems to be little idea what to do about it.
Andrew Haldane, writing in the Telegraph has a suggestion, based on a commission carried out in 1931 that identified structural issues in providing SME lending, which was called the Macmillan gap after the Commission Chair, Hugh Macmillan.
It showed that while large companies tended to have a track record for profit and performance, making it easier to establish their creditworthiness, smaller ones generally do not – hence the gap. He suggests that one way of making it easier to assess SME creditworthiness is to establish a freely available credit register or database of SMEs credit history and revenues.
This would bring together data from credit reference agencies, banks, HMRC records and other government agencies to provide comprehensive information freely accessible to potential lenders such as pension funds, insurance companies and companies supplying trade credit.
Would it work and would it help? Haldane cites “academic evidence” of considerable benefits.
This would certainly identify leads for turnaround and transformation advisers but will it stimulate lending?