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Let’s not delay in helping small firms get the help they need

Across all sectors, confidence in business prospects is low. In the Q2 Federation of Small Businesses Voice of Small Business Index,
29 per cent of small firms in the construction sector believed their prospects would be worse in Q3.

There are many ways that the FSB has proposed to boost the economy, and we strongly support reducing VAT to 5 per cent on renovation work.

Other than going to the banks, using credit cards or savings, small firms have had few options for accessing finance.

With the economy in flux and growth stalled for much of the past year, the Bank of England has tried to boost the amount of money circulating by implementing quantitative easing - a further £75 billion of which was promised last week.

One in five (23 per cent) construction firms had tried to access finance in the 12 months to June 2011. For almost half of these (45 per cent), it was to cover cashflow.

Of those that have applied, 30 per cent didn’t get any of the finance they needed and, as a result, 50 per cent still have ongoing financial concerns.

Credit easing

The Conservatives, in an attempt to boost confidence and to get credit flowing, announced at their party conference they were looking at a new measure called credit easing. The FSB believes that this could be a useful tool - as long as it is applied correctly.

However, the government wants to use credit easing to help small firms access finance which banks are not providing to boost investment and growth and help the economy.

The options are varied, but initial reports seem to focus on a small business bond market. The FSB believes this isn’t the right way to go about it as it would not help all small businesses and may take some time to get started and used.

The FSB would like the government to establish a project which is universal and where all businesses, whatever their size, sector or company status can access it. It needs to be something that can be easily set up, for example using existing government schemes as its backbone, and it must be at arm’s length from the banks.

Favourable rates

It is important that the scheme can be quick to set up, as delay will continue to hinder small businesses looking for finance - another reason why it should be run away from the banks.

And, instead of complicated products, it should provide loans with competitive rates and possibly a small premium to protect the taxpayer.

The government could use programmes which are already working - such as the Enterprise Finance Guarantee or the Exports Credit Guarantee Department - to provide the mechanisms and back office functions, but these would need to be scaled up to ensure that it works properly.

This scheme could be useful if it is thought through and implemented correctly, and we look forward to getting the full details from government.


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