State readies £4bn for small businesses

The UK’s small businesses have been thrown a lifeline after ministers confirmed banks would be able to offer them £4billion in funds from European-backed loans.

Although it will be up to each bank to decide whether to apply for the funds - £1bn-a year for the next four years, demand from firms for cash injections has grown in recent weeks.

Some business commentators suggest the financial pressures are so great that 40 of the smallest practitioners, devoid of financial reserves, are going under each week.

Reported figures from the Federation of Small Businesses are just as worrying – out of the 8,600 business polled, 35 per cent predicted they will be made homeless.

More than one in ten of the firms said they faced imminent bankruptcy, highlighting the group’s fears that when firms collapse they lose everything, unlike bankers.

Joined by its members, the FSB is expected to welcome the readying of £4bn in emergency funds, yet they are demanding more to ensure small firms survive - a ‘survival package.’

This should include empowering Companies House to name, shame and fine big businesses which renege on payment terms to their smaller suppliers at this critical time.

The subscriber fee to the government's Supply2.gov.uk website should also be scrapped, to allow all small businesses access to lucrative, nationwide public sector contracts.

The proposal will not be fought by Conservative Party leader David Cameron, who believes the government portal restricts small firms by insisting they show three years accounts to bid.

Mr Cameron has also called for a VAT holiday and cuts to national insurance contributions for the smallest of companies, designed to relieve their ongoing pressures on cash-flow.

But from the government’s perspective, the current focus is on ensuring the banks “extend availability of credit at competitive prices,” Gordon Brown said at PMQs on Wednesday.

Alluding to the release of the £4bn in funds for small business to borrow, Mr Brown urged the banks “not to change the terms and charges for existing lending”, making it unclear if the costs of the new monies will rise.

The government has no legal grounds to impose rates on the banks, despite requesting they return lending to 2007 levels, and all banks price risk, meaning the cost of borrowing rises as the economy deteriorates.

 

31st October 2008

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