ied bournemouth, 2009 current & future small firm credit policy 1 building a smarter economic...
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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
3IED Bournemouth, 2009
Current & Future Small Firm Credit Policy
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%
4IED Bournemouth, 2009
Current & Future Small Firm Credit Policy
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
5IED Bournemouth, 2009
Current & Future Small Firm Credit Policy
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
6IED Bournemouth, 2009
Current & Future Small Firm Credit Policy
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)
7IED Bournemouth, 2009
Current & Future Small Firm Credit Policy
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
8IED Bournemouth, 2009
Current & Future Small Firm Credit Policy
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
9IED Bournemouth, 2009
Current & Future Small Firm Credit Policy
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
11IED 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
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