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Small Businesses: Finance

Volume 734: debated on Thursday 26 January 2012


Asked By

To ask Her Majesty’s Government what measures they propose to help small businesses and start-up companies access finance.

The Government have a range of measures in place to help small businesses and start-up companies to access the finance they need. They include the enterprise finance guarantee scheme, which helps small businesses lacking track record or collateral to secure bank finance, the enterprise capital funds programme, which provides equity funding to high-growth potential businesses, BIS’s export finance guarantee, UK Export Finance’s products, and the recently announced £20 billion national loan guarantee scheme that will enable banks to offer lower-cost lending to small and medium-sized businesses.

My Lords, can I invite the Minister to correct the false impression given yesterday by the Prime Minister in PMQs that bank lending had increased to small businesses? In fact, the trend in bank lending, published by the Bank of England, shows a decline from April to November of last year. I remind her that the Federation of Small Businesses still talks about the difficulty of members obtaining bank lending. When they do it is typically at a 10 per cent rate. The other government programmes, for instance the Merlin programme, are all smoke and mirrors. The regional growth fund has been lending to big businesses, not small businesses. Can she think of something radical, for instance the state-funded Small Business Administration in America, which has successfully lent to small businesses the right amount of money to get the economy going? It is time that this Government did something big for small businesses.

Right. I am very pleased that I was at Prayers this morning when the right reverend Prelate the Bishop of Manchester read so beautifully the prayer with the words, “the sea rageth”. Without doubt the sea rageth when it comes to money and getting growth going, but it is important that we keep the faith and keep a steady course. The things that I have read out so far are working. There is no doubt that we are lending money to small businesses and they are starting to do well.

I congratulate my noble friend and the Chancellor on the initiative that he has taken to allow people who are starting up businesses to obtain support under the enterprise allowance scheme from near relatives, which, for most people starting a business, is the main source of finance. May I respectfully suggest that what we need in this country is not more debt in businesses but more equity, so the Chancellor’s emphasis on this is really very important and worth while?

Of course, I agree with my noble friend. It is a great asset to allow families to support new businesses. I have no doubt that in the next few weeks when the Budget comes to us, we will hear the Chancellor emphasise again the points that my noble friend made so well.

My Lords, it is deeply worrying when stories come from self-employed businesspeople running small companies—sometimes one-man companies—that the banks give verbal assurances that they will give them finance, but several weeks later when they come to sign up the banks withdraw the assurances. That is cruel and hard, and I hope that the Government will be able to do something about it.

We are of course very aware that very often it is difficult for small businesses to make their case. They do not have the mechanisms that large companies have and are not sure how to go and speak to the banks. The banks assure us that they are working very hard to help people, particularly self-employed people, who come to make a business case. Of course, they have to make a business case because it is other people's money that they are borrowing.

My Lords, I am sure that the noble Baroness will be aware that, notwithstanding the list of programmes that she put forward in response to the Question, particularly in the light of the current economic situation there is significant criticism that the Government should be doing more to stimulate growth. Does she think that Her Majesty's Government have the correct balance between the deficit reduction programme and the steps that are being taken to stimulate growth, particularly in the SME sector?

Is the noble Baroness aware that in a county such as Devon, at the heart of the rural economy are a host of small and micro businesses? Is she further aware of the particular challenges facing small, rural businesses as they try to raise start-up capital and money for ongoing investment at this time? Will she gave an assurance that the various programmes that she mentioned, as well as local enterprise partnerships, are properly weighing the needs of rural businesses compared with those in more urban areas?

The right reverend Prelate makes a very fine point. As he knows, I come from Devon. All the banks are being made aware of the fact that not everyone comes to them with the same case. Banks have heard so much criticism since the Government took office that they are very sensitive to the need to make sure, certainly in rural areas, that they are seen to be listening sympathetically to every case.

My Lords, will the Minister tell the House what is being done to help small businesses to export more? We know that many markets abroad would benefit from putting their small businesses together with ours. What action are the Government taking to concentrate on small businesses getting into these very important export markets?

The noble Lord, Lord Green, heads up our export division. I am absolutely sure that he has this well on his scanner. When he took up his office, he decided not to go abroad first but to go around Great Britain and look at small and medium-sized businesses to see what they needed and what help they could be given. I like to think that one day he will come here and described this himself.

My Lords, does the Minister agree that while the Government are doing a lot of what they can to provide finance, the real issue for small business is the cost of the regulatory burden, this is an unattractive economy for small businesses to operate in, in comparison with others, and what is needed is a programme of regulatory exemptions for small businesses?

As my noble friend knows, we are looking at the regulatory system from top to bottom to see that, wherever possible, we make it easier for people to go to work and to get the job done.