The government has been under constant pressure this year to improve SME lending facilities and with the year near its end, the chancellor has announced a £20 billion national loan guarantee scheme for SMEs. So, has Christmas come early for small businesses in the UK?
Due for launch in January 2012, the two-year scheme will see the government underwrite SME borrowing by the big banks, a move it envisages will cut the cost of borrowing for small businesses by up to 20% and enable the high-street lenders to offer cheaper SME loans.
The news has been largely welcomed by the SME sector, which is likely to see the move as a triumph after a year of sustained campaigning for improved SME lending facilities. It has repeatedly argued that big bank SME lending terms are prohibitive and the new package of measures will certainly put to the test the argument presented by the banks that a lack of demand is behind subdued small business lending levels.
The SME credit scheme, which also includes proposals to create a bond market for the small business lending sector and a public/private sector investment fund, also puts a question mark against the future of Project Merlin, or at least its annual small business lending targets.
Another point worth making is that the small business lending landscape has changed markedly over the last 12 months. Alternative SME finance has grown notably, in particular invoice finance and factoring, led by new SME credit facilities such as selective invoice finance.
So, is the new SME credit scheme an early Christmas present for small businesses? Potentially. But, looking ahead, SME sector growth may be underpinned by two pillars – big bank small business lending and alternative SME lending products such as selective invoice finance.
To find out more about Tandem Invoice Finance services, contact us on 0845 618 8515 or info@tandemuk.com.