Credit where it's due?
Oct 18 2011
Financing has emerged, unsurprisingly, as the hot topic in a report that examines what the world’s leading nations can do to incentivise entrepreneurs, create jobs and strengthen their economies.
Released ahead of the G20 Young Entrepreneurs Summit, Ernst & Young’s ‘Entrepreneurs speak out: a call for action to G20 governments’ finds funding issues at the heart of concerns for business people, with 80 percent of entrepreneurs looking to governments to facilitate greater access to funding for start-ups.
We all know what the UK government’s answer was to this call. Project Merlin, with its bullish targets set out for bank lending to business, looked promising when it was unveiled at the start of the year but, of course, disintegrated into a damp squib of failed targets and broken promises. The banks defended the dismal lending figures by insisting there was no demand for loans. Small businesses vehemently disagreed. And the country’s much-vaunted private sector growth was no closer to materialising.
After Osborne effectively admitted that the scheme was a failure, talk has now switched to ‘credit easing’, which has been met with confusion in many quarters. The proposal involves the government buying up corporate bonds in a programme that could ultimately run into tens of billions of pounds. Reportedly, Osborne is trying to avoid the Treasury making direct loans with the money. Instead, by taking loans off the banks' hands, the Treasury hopes lenders will be willing to take on more risks and lend to firms that might otherwise be turned away.
Clive Lewis, head of enterprise at the ICAEW and regular contributor to SmallBusiness.co.uk says that while the intention of the possible programmes is to help smaller business access bank finance, how and the extent that this will happen is yet to be decided. ‘So we have to wait for the Chancellor's Autumn Statement on 29th November to find out the details. Even then it will take time for any programmes to be implemented for smaller businesses to see any benefits,’ he adds.
Whatever happens, the government will have to make sure that any programme does not adversely affect progress on reducing the government's budget deficit, and also that any programmes comply with EU State Aid rules which attempt to ensure that a member state government does not unfairly support its businesses to the detriment of the other EU member states, Lewis adds.
So, in summary, while Project Merlin was initially praised before fizzling out, with credit easing there is nothing concrete yet to even welcome ahead of contemplating its probable demise. Encouraging times.
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