smallbusiness.co.uk: Helping your business think big

The latest bailout confirms that the banks are too big to fail – at least until the next general election.

Following the government’s banking shake-up, two main aspects will appear of interest to small businesses. Firstly, the breaking up of the banks to create a more competitive market place (for example, RBS will be forced to divest 300 of its branches to create a separate small business bank). Secondly, the announcement that: ‘commitments to increase lending to businesses and homeowners by a total of £39 billion for both banks will remain in place'.

Creating a more competitive marketplace should, in theory, lead to better lending terms for both consumers and small businesses. But don’t hold your breath on this happening any time soon. Stephen Hay, of accountancy firm 2020, has seen countless viable SME clients refused bank finance: ‘I’ll be amazed if any one notices the difference after these announcements. I wait to see what is created from the divested branches. But whatever it is, it won’t have any effect in 2010,’ he says.

Continuing to put pressure on the banks to increase lending is certainly a welcome move, as there seems little point in creating more banks if they remain reluctant to lend. But as the wording suggests, this doesn’t actually amount to a new guarantee of extra lending. So in terms of improved access to finance, we’re not getting anything more in return for the bailout.

As David Frost, director general of the British Chambers of Commerce (BCC), says the focus must now be to implement more policies that will increase the availability of finance to small and medium-sized firms. ‘Without access to finance for viable businesses, the UK economy will pay a serious long-term price,’ he says.

If anything, the latest bailout will steady the ship until May. But no-one should be in any doubt of the troubles thereafter for the UK.