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Will the 2012 Budget Solve Funding Problems?

With the 2012 Budget due this month, many are hoping for a more successful government approach to funding for small businesses. However, Sir Mervyn King, governor of the Bank of England, reflected the fears of many by telling MPs that all the pieces were in place for UK growth – except the vital funding needed by SMEs.

Government Funding

With much of Tuesday’s cabinet meeting dedicated to tackling ‘blockages to growth’, this problem is not one the government is unaware of. The difficulty many SMEs find when looking for credit is recognised as one of these blockages, but that doesn’t mean it’s a straightforward problem.

Chancellor George Osbourne’s new attempts to inject an extra £20bn of loans into small businesses have already encountered obstacles. These loans would offer a cheaper, state backed funding path for businesses, although difficulty has arisen in finding a scheme attractive to both banks and SMEs – any scheme put in place also needs to conform to EU state aid rules.

Despite this, David Cameron remains confident; ‘The chancellor said in the Autumn Statement the policy would be in place in time for the budget and that’s exactly what’s going to happen.’

Past Failures

There has been an array of new funding options made available over the past year and a half. However, many have floundered and UK businesses have not been receiving the funding they need to demonstrate vital growth and recovery.

The flagship export enterprise finance guarantee launched in the spring last year has made just five loans, supporting well under £3m of trade.

The process of increased funding will take time, however – and hopes are that lending will pick up with new initiatives in 2012. It will be state backed banks Lloyds and RBS who will be the biggest users of these initiatives.

Stimulating growth through small business lending remains a tricky balancing game for policy makers and banks, and any coherent government programme for business funding may still be at the drawing board.

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