A new supply chain finance scheme was announced by Prime Minister David Cameron last week. It is the latest in a long line of government initiatives to get much-needed cash into the hands of small business owners (SMEs).
All very commendable. Any initiative that’s able to fiscally recharge the coffers of hard-pressed SMEs is to be welcomed. We said this about Project Merlin. And the National Loan Guarantee Scheme.And the ‘Business Bank’. And while it’s too soon to say yet whether the latter will be successful – because it won’t launch for another 17 months – there’s an underlying message here. That is, despite concerted efforts from the government, the banks just aren’t lending to business customers.
This latest initiative bears this sentiment out. That’s not to say it’s doomed to failure. We need to give it a chance and let it pan out before we make any snap judgement.
It must be done properly though. That means it’s vital for those big businesses that 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 that large firms will abuse the system by making it a pre-requisite for suppliers who use the system to accept longer payment times. It’s not inconceivable that big business will want something back for their help – there’s no such thing as a free lunch, as the old saying goes.
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 this one on 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.
Ultimately, what we need is the banks to resume lending and to resume relationship banking with business customers. Because until that happens, no matter what type of scheme the government of the day dreams up, the economy will not be able to repair itself.
☛ Robert Downes is a policy adviser at the Forum of Private Business