SMEs face a decade of funding woes warns BCRS

SMALL businesses face a decade of funding problems unless the banks relax their lending strategies, the chief executive of a Wolverhampton-based business loan fund has warned.

Paul Kalinauckas, chief executive of Black Country Reinvestment Society (BCRS), said he feared it could be anything between 10-15 years before lending patterns returned to pre-recession levels – which would be too late to save many firms.

As the coalition Government strives to find a solution to SME funding problems, the BCRS has developed a lending model which it believes could be rolled out across the country.

The model is already working successfully and both Sandwell and Staffordshire local authorities now have business loan funds that are being managed by BCRS.

“We will not get a change in our lending culture until we back both winners and losers”, said Mr Kalinauckas.

“The banks simply do not want to lend to small businesses and would prefer to get out of the market altogether, but are reluctant to say so because of reputational risk. Some banks are already pricing them out by offering interest rates of over 20% or forcing them into unsuitable loan products such as invoice financing.”

He said any talk by the Government of entrepreneurs being the driving force behind economic recovery was irrelevant because the banks were refusing to lend them money – a situation supported by Bank of England figures which showed lending to businesses continues to fall.

“We are not saying that banks should lend to all businesses regardless, but they enjoy a huge monopoly,” he added, supporting the view put forward by the Institute of Directors that there needed to be more competition to the banks.

“The way out of the current situation is for the banks to lend money to organisations like BCRS to lend on to small business. However, we must have loan guarantee mechanisms in place to cover the risk, for example public sector support such as the Enterprise Finance Guarantee (EFG) scheme for banks.”

The Enterprise Finance Guarantee (EFG) scheme is a £1.3bn loan guarantee scheme aimed at helping SMEs with no or insufficient security and offers a government-backed guarantee of 75% of the loan value.

However, Mr Kalinauckas said many SMEs had reported difficulty in accessing the scheme, which was not the case with BCRS as it offered a flexible approach to lending.

“New business owners often don’t have secure assets and have taken huge personal risks for their businesses. Our lending criteria includes taking into consideration the character of the business owner and an exploration of the local context and bigger picture,” he said.

BCRS recently celebrated its small business loan fund reaching £5m. It now has plans to extend this to £10m within the next two years.

The company, founded in 2002 as a not for profit loan fund, offers loans of between £10,000 and £50,000 to small businesses in the Black Country.