Banks restrict SME growth

At a meeting with the Bank of England, Sir Ronald Halstead, president of the Engineering Industries Association (EIA), stressed that the UK’s economic recovery was being put at risk by the behaviour of the banks.

‘The banks are holding back the growth of SMEs and slowing the supply chain,’ said Sir Ronald. ‘They are inhibiting export opportunities that would do much to establish British manufacturers abroad, improve our balance of payments and increase employment in the UK. The present devaluation of the pound sterling against the euro and US dollar provides a tremendous opportunity for UK industry that is in danger of being lost.’

The EIA, which represents engineering SMEs, met with leading trade associations from other sectors and senior Bank of England officials recently to discuss the current economic situation and its effect on SMEs.

Putting forward the views of EIA members, Sir Ronald said that there were encouraging signs in the economy pointing to modest growth, despite variations by sector.

According to the EIA, there is some improved confidence, particularly among exporters, with export demand stronger, which has been helped by the depreciation of the pound. Price increases are difficult in the UK market, but exporters are said to have had the opportunity to increase margins.

Employment levels remain steady and many companies are returning to full-time working from a four-day week, in some cases working overtime.

The EIA stated that negative factors threatening recovery include a lack of funding for investment and the credit squeeze.

‘There is still a credit squeeze,’ said Sir Ronald. ‘Banks are making it difficult and more expensive to borrow. They are increasing charges, reducing overdraft limits and asking for personal guarantees.

‘They say that money is available but there is little or no demand from SMEs, but there is widespread condemnation of the banks for the hurdles they have introduced that restrain companies from borrowing.’

Similarly, EIA members have said that the Government Enterprise Loan Guarantee Scheme is having limited success, with loans offered at two per cent above normal bank lending rate.

Meanwhile, the European Investment Bank Loan Scheme for SMEs, which offers affordable loans for capital investment, is not being promoted by UK banks despite European companies taking advantage of this scheme.