Vince Cable has slammed the support offered by banks to small and medium-sized businesses, referring to them as “second division”.
Speaking at the Lord Mayor of London’s trade and industry banquet at Mansion House on Wednesday evening, the business secretary said thousands of firms were trapped in a “valley of death” because they could not get the credit they needed to develop new products.
Cable went on to reveal, however, that he will not break-up the Royal Bank of Scotland and create a “British business bank” specifically to increase the flow of credit to firms.
The Federation of Small Businesses (FSB) has praised Cable for criticising the banks over their reluctance to provide affordable loans for SMEs. However, the group also called for the promotion of alternative finance to ensure that bank loans are not the only option available to these businesses, many of whom are charged higher interest rates than the national average.
FSB London senior development manager Matthew Jaffa hopes Cable will be as vocal about alternative finance methods as he is about banks failing to support SMEs.
He said: “We support the fact that he is calling for banks to be broken up and more competition, but we want in London is greater alternatives to access to finance. Which is why we are today supporting the launch of the Next Generation Finance Consortium in London which pulls together credit unions, angel investors and equity investors to give a new impetus to access to finance for London businesses.”
Jaffa feels that alternative access to finance needs a greater push as more than a fifth of London businesses have been hit by interest rates that are twice the national average of seven per cent.
He said: “Currently we’re seeing in London that they are being hardest hit by overdrafts and loan interest rates. The average interest rate for loans and overdrafts across the UK is seven per cent but in London it is over nine per cent and we’re seeing that 21 per cent of businesses in London have had a loan or overdraft at 15 per cent.
“That’s not sustainable, that can’t go on as it’s unfair to business that are looking to grow and take on staff. So we support Vince Cable’s views and we want to see actions put into place which is why we’re calling for him to start a small business administration similar to the USA and this will enable businesses to be the focus across government so that issues like access to finance and procurement contracts can go to small businesses.”