Government loans to SMEs could backfire, warns accountants James Cowper

The Chancellor George Osborne in his speech to the Conservative Party conference yesterday (3 October) has finally recognised what SMEs up and down the country and known for the past two years – the banks are not lending.

The Government’s recognition of this lending crisis is welcome says Thames Valley and South Coast accountants and business advisers James Cowper, but there is a danger that the administrative requirements on SMEs to qualify will outweigh the benefits.

Sue Staunton, a partner at James Cowper, said: “The ‘credit easing’ scheme appears to be based upon an idea floated by the Government when in opposition called the ‘national loans guarantee scheme’, where it would underwrite loans made to businesses. It does sound an innovative and attractive solution but, as always, the devil will be in the detail.”

The scheme, which could see the Government, through the Bank of England, purchasing the financial assets of a business, is claimed to be fiscally neutral with those assets being held on the Government’s balance sheet.

Sue adds: “This scheme could put the Government or its successor in the rather awkward position of having to foreclose on businesses that are unable to service their debts.”

Sue Staunton, Partner, James Cowper LLP, Tel +44 (0)1865 200500 or email sstaunton@jamescowper.co.uk

05.10.11