Small and Medium-sized Businesses: Access to Finance

Lord Bilimoria Excerpts

Thursday 30th January 2014 Lords Chamber

[Lord Bilimoria (CB)]

My Lords, I thank the noble Lord, Lord Berkeley, for bringing this debate before the House at this crucial time for our economy, particularly with regard to SMEs. I have started a business from scratch. There were two of us and we were even smaller than an “S”; then we were an “S”; then we became an “M”; and now I have a joint venture with a large multi-billion global company. I have been there and done it, and seen how difficult it is to raise finance as a growing business. SMEs are the engine of our economy and they need funding to grow.

Confidence is beginning to return to business and businesses want to grow and invest but there is difficulty in raising money. I do not want to banker bash but a number of issues need to be raised, including poor banking lending practices, punitive charges, interest rates, difficult guarantees, the exclusion of certain loans from approval and the changing relationship with banks. In the early days when I started in business, senior bank managers had experience. Now there is a lack of experienced managers. Bank managers do not have the authority to lend more than £50,000 in many cases. I know that many SMEs struggle to raise finance.

Bank managers are terrified of taking the risk. They weed out applications that they think are doubtful. The lack of lending means that businesses cannot grow, innovation suffers, our exports suffer and we become uncompetitive as a country. I hope that the business bank will help the situation. Can the Minister advise us when the business bank will come into operation and action? Awareness continues to be an issue. The Government have a number of schemes but, from what I have seen, just over 50% of businesses know about it. However, that means that more than 40% of businesses do not know about all the support that is available. What are the Government going to do about that?

There are horrible stories about banks which continue to bully SMEs through either restrictive covenants or excessive charges. They find excuses to call in loans, to take security or to break covenants. This is terrifying for a business. Often you can see them extracting extra interest charges, invoking covenants in the original facility letters or instructing new valuations with costs to be met by the borrower. When it comes out lower, the bank may increase the margin, call in the loan or ask for capital repayments. This is distressing for businesses which quite often are just abiding by making payments. I know of personal examples of businesses that have been bullied and have had to pay up to £100,000 worth of excessive legal fees and valuation fees when they have been making their payments and, in the end, they were absolutely fine. Extortionate fees are still being charged and in many cases high street lawyers are conducting the cases. Will the Minister take this up with the banks to make sure that excessive legal fees are not charged by banks?

Will the Minister meet the CEOs and directors of the banks to address all these issues—the valuations, the legal fees, the aggressive attitude and the lack of funding—so that we can have a brighter way forward? Will he also update us on all the government and BIS-led initiatives that exist of access-to-finance schemes—loan guarantees to SMEs, loans for start-ups, the EIS scheme, the Enterprise Finance Guarantee, the Seed Enterprise Investment Scheme. There are so many schemes. Will the Minister tell us what is going on with these schemes? There are also growth accelerators. There are a plethora of them. How effective are they and are they succeeding?

The noble Lord, Lord Berkeley, mentioned the Tomlinson report. It was reported in the Telegraph by Louise Armitstead that more than 1,000 companies have come forward with allegations of morally wrong treatment at the hands of the Royal Bank of Scotland’s restructuring division. Lawrence Tomlinson had told the Treasury Select Committee that his “dossier” of cases against RBS’s global restructuring group has “continued to grow” since he published the report. He claimed that RBS was “killing off” small businesses for its own profit. This person is the entrepreneur in residence at BIS and he recommended that RBS and the Lloyds Banking Group be divided into three separate banks. Does the Minister agree that that is the correct course of action? Tomlinson argued that despite the financial crisis, British banks are still too big to fail and too big to regulate. He said that without radical action there would be,

“nothing to stop 2018 becoming another 2008”.