Plans for a new state funded bank – Hurrah (or maybe not!)

The business secretary has just announced plans for a new lending initiative. Sounds promising, until you look at the small print;

A couple of comments to err on the side of caution:

1. It is suggested that it will take another 18 months or so for the scheme to go live. That is clearly too long. If you can wait that long for funding, then you may be okay, otherwise this new scheme will not matter because your business may not be around.
2. The definition of ‘small business’ is again unclear; is it aimed at businesses wanting to borrow £100,000 or £200,000 (in other words a really small business) or is it aimed at small companies like previous schemes i.e. with turnover of £1m plus (in other words a small company). Remember both are classified as SME but they have totally different requirements. It looks like this new scheme will benefit the latter, whereas it is the former who really need it.

So please excuse the scepticism but my conclusion is that this is just another idea destined for the bin?  Let me remind you of project Merlin, The Enterprise Guarantee Scheme and the previous flagship “Funding for Lending” Scheme. The latter, which came under scrutiny when some banks admitted that they didn’t even entertain the idea of getting involved!

At the end of the day schemes like this will not be successful because nobody can afford to borrow with inflated rates in these unrealistic market conditions.