IED Bournemouth, 2009 Current & Future Small Firm Credit Policy 1 Building a Smarter Economic Future...

1IED Bournemouth, 2009

Current & Future Small Firm Credit Policy

Building a Smarter Economic Future

The UK Economic Development Conference 2009

7-8 October 2009

Royal Bath Hotel, Bournemouth

IED Conference Workshops 2009

Current & Future Small Business Credit Policy

Dr Richard Roberts - SME Market Analysis DirectorBournemouth, October 2009



Size & Scope of Small Business Credit Market

2004 2007Number of Firms under £1m 2.98m 3.4m

-% with a loan 21% 17%-% with an OD 22% 21%

Total Loans & OD outstanding £39.1bn £50.3bn

Number Credit Applications 220k 192k-% rejected 15% 20%

Number of New Loans 187K 160KAverage New Business Margin 2.90% 3.10%

-% discouraged borrowers 5% 7%



2004-07 A Golden Era?

• (Too?) Rapid rate of economic growth

• Significant expansion of the small business population

• Growth in both the stock and flow of small business lending

• Fairly high levels of customer and official satisfaction with the debt markets



2007-09 What has changed?

• Worst real economy recession since the early 1980s (twice as deep as early 1990s) and close to the experience of the 1930s

• Most severe disruption to financial markets since the 1890s

• Banks small business customers believe that debt markets have closed and this significantly impacts on ability to do business

• Government believes this as well – hence change in the scale and targeting of public intervention in the debt market to address the “finance gap” with the Enterprise Finance Guarantee



Cyclical Turmoil

Small Business Lending Growth

Source: SME Market Analysis

Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 20090

10

20

30

40

50

60

70£bn outstanding

0

2

4

6

8

10

12

14

16% 12m growth

Stock of loans outstanding (left) 12m % change (right)



Structural not Cyclical Developments

• Increase in the cost of capital for banks (indeed across economy wide)

• Prospect of greater regulation Consumer and financial

• Mortgage equity release no longer subsidise the small business credit system

• Open up old wounds – financial inclusion



Future Developments

• First time since late 1970s, public authorities hold the key – EFG replacement, direct shareholdings and local/regional initiatives

• Two broad directions to travel Patch up and wait for cyclical upswing A more integrated approach which acknowledges

shortcomings and builds solutions



Partnership Approach?

Commercial banks

CDFIs, local loan

funds

Charities, unclaimed assets etc

EFG2, EIB funds etc

Area of policy “gap”

IED Conference Workshops 2009

Current & Future Small Business Credit Policy

Dr Richard Roberts - SME Market Analysis DirectorBournemouth, October 2009

Thanks for your attention



Building a Smarter Economic Future

The UK Economic Development Conference 2009

7-8 October 2009

Royal Bath Hotel, Bournemouth

IED Bournemouth, 2009 Current & Future Small Firm Credit Policy 1 Building a Smarter Economic Future...

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Transcript of IED Bournemouth, 2009 Current & Future Small Firm Credit Policy 1 Building a Smarter Economic Future...