Basel Committee Proposals May Kill Small Business Lending
Why is it that when any bank related legislation is proposed it is always the UK’s small and medium businesses who are the ones to suffer.
A point in case being the proposed changes put forward by the Basel Committee on Banking Supervision this week.
For those of you who missed it, one of the most startling changes is the suggestion that a 300 percent risk-weight be applied to small businesses.
Put simply, this means the banks would have to put aside up to three times the amount of capital they are lending to small businesses, making lending to SMEs a very unattractive proposition.
Despite their apparent apprehension to lend to small business, even the British Bankers’ Association (BBA) is up in arms about the proposed amendments, which would also impact on first-time buyers’ ability to secure mortgages.
A spokesman for the BBA comments;
“The penal increase proposed will have profound effects on SMEs, which runs completely counter to the policy of many governments and the G20 as they seek to encourage businesses to grow”.
More by David Banfield
As someone who works in secondary financing, one would expect this to be music to my ears as a drop in lending from the banks means more SMEs opting for alternative services such as invoice discounting, crowd-funding or peer-to-peer lending.
From a commercial perspective I can definitely see the opportunities it would present.
Unfortunately, I can also envision the hardship it is going to cause for many of Britain’s SMEs and the knock-on effect that will have.
It is important to remember that SMEs are the job creators and the true driving force of the economy.
Hinder them and it will have a ripple effect on everything else.
Rather than scuppering growth the Government must create incentives that promote small business expansion.
The most beneficial outcome for all elements of the economy would be to see production increase and unemployment drop as our SMEs grow, regardless of how they secure the finance to do so.
Earlier in the month I wrote about Britain’s dangerously low levels of productivity and the measures Government ought to take to create an industrial impetus.
One such measure was making access to capital easier.
Sadly it appears that the Powers that Be choose to press on with their risk-averse agenda that will no doubt bring greater stagnation to the economy.