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Small firms unimpressed by Bank of England cash boost

1 commentBy Graham Holter , 10-Oct-2011
Last updated on 10-Oct-2011 at 15:50 GMT

Small food firms have expressed doubts that the Bank of England’s £75bn injection into the economy will make their lives easier.

The extension to the quantitative easing programme is intended to trickle down to the commercial banks, and encourage more lending to small and medium-sized enterprises (SMEs).

But Henry Roberts, chairman of regional promotional body Taste North East, described the move as "a scattergun approach".

He added: “In the north east, 90% of all the companies in the food and drink sector are SMEs employing 20 people or less, and getting funding into our sector is of pivotal importance. There are companies whose banks aren’t being as co-operative as they ought to be.

“It’s very important that, if you want wealth and job creation to come from the sector, the government ensures that the banks do release some of this money and that it doesn’t just sit on their balance sheets.”

Closed for business

James Ecclestone, owner of Casemir Chocolates in north London, said: “Whatever Vince Cable may say, the banks are closed for business.”

He said Casemir had recently ploughed £50,000 into an expansion project and asking for a contribution from the banks was ‘"like getting blood out of a stone". The company eventually settled for a modest extension, for a limited time, to its overdraft.

Ecclestone added: “Who says the £75bn will be lent to small businesses?

“The government hasn’t said ‘you must improve your net lending’, just the gross lending. If they don’t have a target for net lending they’re not forced to lend.

“When I speak to my peers most of us would say we’re being pressured to pay more quickly by our suppliers and it’s much harder to collect money from customers. Because the banks aren’t funding the gap, the whole system is under pressure and there’s a constant drain on cash flow.”

Ecclestone said instead of quantitative easing, the government should explore other ways of helping small business. He suggested that funds should be released to businesses which were prepared to guarantee employment to people working towards National Vocational Qualifications.

Roberts at Taste North East said the Rural Development Programme for England (RDPE), a match-funding scheme run by the Department for Environment, Food and Rural Affairs involving Treasury and European money, has helped create up to 70 jobs in the region since January 2010.

Horrendous

But an East Sussex cheese producer described the scheme as "horrendous" and too complicated for businesses requiring modest sums of money.

Cliff Dyball, co-owner of the Traditional Cheese Dairy in Stonegate, said the business had "phenomenal difficulties" in obtaining finance when it started out a decade ago.

“The RDPE was an absolute nightmare,” he said. “For a business like ours where, being a manufacturer, you’re running around like idiots for 12 hours a day, trying to find the time for form-filling and descriptions of everything you have to go through is just a joke.

“For the £9,000 to £11,000 we were asking for it was a horrendous effort. If you were doing a project that needed £100,000-plus then the whole thing becomes feasible.”

Dyball said fragile consumer confidence, rather than the lack of bank finance, was the reason his business was not looking to expand.

Andrew Kuyk, director of sustainability and competitiveness at the Food and Drink Federation, said: “We believe that SMEs in our sector are still finding it difficult to raise funds, at the right price, for development and expansion.

“The £200M of quantitative easing first released in Q1 2009 appears to have had very little effect on the banks’ willingness to lend to SMEs that year, according to Bank of England statistics for our sector.

“Recent feedback from members, 68% of whom fall under the SME category, suggests that SMEs in our sector are finding it difficult to demonstrate to banks the growth potential for food and drink products,” said Kuyk.

Government needs to work with banks to review their eligibility criteria, particularly under government schemes such as the Enterprise Finance Guarantee scheme, he added.

1 comment (Comments are now closed)

Small firms unimpressed

Quantitative easing is yesterday's solution to today's problems. Because financial institutions have got themselves into a position of holding worthless securities such as bonds, derivatives and insurance bonds unbacked by productive assets, their first concern is to get themselves out of the hole they are in and pay back creditors and shareholders. This does nothing for the national productive economy.
The only solution which will work is to let the banks stew in the mess they got themselves in and to set up a new Business Financial Body. That body should do retail banking with the money that is being used for the quantitative easing. It would take a little time to set this up - and I would offer shares for public subscription. But because it would concentrate on the problems faced by lack of finance for business, it would be well worth doing. New Zealand did something similar with KiwiBank, a Crown Owned Enterprise, which rapidly became a brilliant success.

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Posted by Dr Kelvin Duncan
10 October 2011 | 22h38