30th June 2020

"UK banks are failing SMEs and a brand new government-backed bank should be considered" says Greg Taylor, partner and head of financial solutions at accountants MHA MacIntyre Hudson

Before the UK Chancellor’s July statement on restarting the economy, Greg Taylor, partner and head of financial solutions at MHA MacIntyre Hudson, the UK member of Baker Tilly International, says UK banks are failing SMEs and a brand new government-backed bank should be considered.

“The UK banking system is currently failing SMEs. As we look to reboot the UK economy the government needs to take radical action to ensure SMEs don’t come out of lockdown crippled by debt and unable to access funding. The best solution would be to establish a new government-backed bank to rival the main high street and investment banks and to complement the British Business Bank.

The traditional high street banks and other big financial institutions are seemingly not prepared to take the trouble to understand the characteristics of particular firms and don’t empower their staff to make judgement calls–instead relying on sweeping judgements about whole sectors. Many SMEs with long-term potential will therefore find themselves locked out of funding due to blanket credit policies and debt racked up under the CBLIS loan scheme. The British Business Bank is supposed to remedy this situation but it doesn’t lend directly to SMEs and its response to COVID-19 has been slow and bureaucratic.

“What is needed is a bank prepared to back deserving companies over the long term that is free from ordinary shareholders with vested interests. The government could invest in the bank directly or, if funds are to be raised from private investors, they should be in the form of bonds or other instruments that insulate the bank from short-term pressures. Staff should also have expertise in specific business sectors so they have the confidence to make a judgment call about a company’s prospects for long-term success, rather than relying on crude metrics(like credit ratings) or generalisations about certain sectors.

“There is already a precedent, as the Industrial and Commercial Finance Corporation(ICFC), now 3i, was set up in 1945 and backed companies with sound business fundamentals regardless of short-run fluctuations. It proved to be a successful model that paid off for the ICFC as well as its clients. The UK needs to think urgently about reviving this model, or COVID-19 and the lockdown will do a great deal of damage to our SME sector that could be avoided.”