Bailouts and Blackouts: The True Consequences for SMEs

Following the British Government’s rescue of two of the biggest financial institutions, the Federation of Small Businesses in Scotland is now voicing concerns over a strangling domination of the business banking market. In particular, the FSB have made clear their uneasiness over a monopolisation in business credit for small to medium enterprises.

The RBS Group and the Lloyds Banking Group, both having required substantial bailouts and effective nationalisation following poor decisions in business acquisitions, have been accused of forging a duopoly within the Scottish credit sector for SMEs. There is now growing disquiet surrounding the issue of a dilution of credit choice for small business owners when it comes to banking.

Further to the possible ramifications of this for SME, there have been calls for the government to aid the reputation of banks that did not require such high-profile bailouts. The director of Debt Advisory, Neil McDaid, asserted that there was a lingering distrust in banks combined with an inversely anticipated increased loyalty, meaning that the introduction of competitor brands and products in capital lending to SMEs would become increasingly difficult.

He commented: “The availability and cost of bank debt continues to be a problem for businesses, and an obstacle to economic recovery. The lending commitments of the state-owned banks have failed to make a significant impact on borrowers so far.”

Whilst this may prove to provide the groundwork for an analysis of future business lending pending a continued commitment in the wake of economic recovery, there have been warnings that a moderating influence on the release of credit, as displayed by the cautious activity of the Scottish duopoly could be beneficial. Peter Jones has this week spoken with caution about a substantial credit influx, which would result in the perpetuation of toxic debt and debt solutions in companies with poor business models.

“If you open up the doors and credit opens up too fast, all that’s going to happen is the businesses that are going to be saved, on occasion, will be the businesses that probably do not deserve to be around.”

Small to medium enterprises, it seems, are now under increasing pressure to secure credit in an economic environment that neither suitably facilitates negotiation in essential credit nor aids in providing contingencies when dealing with Individual Voluntary Arrangements or Protected Trust Deeds when they struggle to repay inflexible debts they had no choice in taking out.