Black Country Reinvestment Society comments on Coalition Government green papers published today Monday 26/07/10 on banks and financial services –

Vince Cable says he will operate a “carrot and stick” approach to ensure that banks maintain lending to small businesses. This follows the Business Secretary’s recent statement that he will use “mandatory action” to force the semi-nationalised banks to lend on favourable terms to small and medium size enterprises (SMEs). Recent figures from the Bank of England show that lending to businesses has been falling steadily, reaching £25.4 billion from April to June this year.

Cable has accused the banks of “not acting in the public interest” and charging “higher fees and increasing demands for security” to cover the risk of lending to SMEs, and added that “we would question whether banks should be paying out dividends and bonuses when that money could be used to support small business lending.” He has also warned of a supply problem affecting loans to SMEs which would “intensify when the economy starts to grow”, thus blocking economic recovery.

Paul Kalinauckas, chief executive of Wolverhampton based small loans company Black Country Reinvestment Society (BCRS), said, “There is a high degree of risk involved in running a small business, whether it’s a start up or an established business. New business owners often don’t have secure assets and have put everything on the line for their businesses. BCRS already has a proven delivery vehicle in place that can offer loans to SMEs and has been doing so successfully since 2002.”

BCRS recently celebrated their small business loan fund reaching £5 million, and have plans to extend it to £10 million within the next two years. The company was founded in 2002 as a not for profit loan fund offering loans of between £10,000 and £50,000 to small businesses in the Black Country. Last year, BCRS created a £750k business loan fund with Sandwell Metropolitan Borough Council and are in discussion with other local authorities in the Black Country. They have created a £1m loan fund with Staffordshire County Council and are looking to expand into Stoke on Trent. The company was recently featured on the Channel 4 documentary Dispatches entitled “How the banks won”, shown on 14 June, on how the Sandwell Business Loan Fund, managed by BCRS, was helping local SMEs gain access to finance after being turned down by the banks.

“BCRS are in an area where the multi-trillion pound commercial banking sector refuses to operate”, says Paul Kalinauckas. “If they could, they’d be doing it. But they aren’t, because they can’t make money out of it and the transaction costs are too high. The transaction costs for a £20k loan are similar to a £2m loan. But there’s money to be made from the £2m loan, none from the £20k loan, so it’s not worth the effort. That’s the challenge we face.

“The banks say that demands for loans from the SME sector have been slack. That’s not surprising. If BCRS offered asset backed, copper plated guaranteed loans in the way that banks do, we would then require our clients to put up all of their assets - thus putting the futures of their families at risk – and we’d have our pound of flesh. But that is completely contrary to the BCRS ethos as a co-operative. We want to back enterprising people, not ruin them.

“Vince Cable has stated that he is worried about the behaviour of the banks. They have already been given trillions of tax-payers money. How much more do they need? If the coalition government is serious about helping and encouraging small enterprises and innovators, they can do worse than looking at the model we have created here in the Black Country – a workable solution based on mutual principles that can help make the Black Country great again. And the time is now if we are to encourage economic recovery.”

ENDS

Notes

BCRS is run on a non profit distributing basis. Established in 2002, it is committed to helping businesses in the Black Country and Staffordshire.

BCRS receives funding from Advantage West Midlands and the European Regional Development Fund

BCRS is a founder member of the Fair Finance Consortium of “not for profit” lenders in the West Midlands www.fair-finance.net , a Charter member of the National Trade Association the CDFA (Community Development Finance Association) www.cdfa.org.uk

BCRS employs a staff of eight at its HQ at Wolverhampton Science Park, WV10 9RU.

For more information please contact Paul Kalinauckas of BCRS on
T: 0845 313 8410 M: 07802 385529 E: enquiries@bcrs.org.uk W: bcrs.org.uk

Or: T: Kate Copestake, Copestake Ltd PR to BCRS T: 01902 750578 M: 0781 744 3745