Lenders must give SMEs a fair chance

14 June 2010

I hope that with a new government in place we will see some support for small to medium-sized firms.

Cutting administration costs and encouraging enterprise is vital but the sector is still being starved of credit.

While there are signs of improving liquidity in the residential market we have yet to see these in the commercial sector.

More than two-thirds of the term credit supply for SMEs has been lost in recent years.

In his first speech as business secretary Vince Cable said growth would have to come from this important sector and he believes in competition rather than cartels.

Most importantly, he is committed to making state-owned banks supply credit and working capital to viable businesses.

He does not believe big banks’ claim that there is no demand for this credit but rather says the bar is set too high and that risk aversion with regard to SMEs could stifle recovery.

Cable should take a good look at the Office of Fair Trading’s recently announced review of barriers to entry and expansion in retail banking. It is investigating difficulties faced by lenders in entering and thriving in a market dominated by huge players following the banking collapse.

Lack of competition is the single biggest problem in the commercial mortgage market. Until there is a viable alternative for advisers and their clients there’s nothing to keep big players honest in their service delivery or product terms.

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