Policy for Growth

Debate between Louise Mensch and Sam Gyimah

Thursday 11th November 2010 Commons Chamber

[Mr Sam Gyimah (East Surrey) (Con)]

Thank you, Mr Deputy Speaker, for allowing me to speak in this important debate. In the short time that I have available, I shall focus on small businesses. Many Government Members agree that to get the economy back on track, we need small businesses and the private sector in general to begin to employ people again. We also believe that only when the private sector begins to employ people will we lift the country up and get it back on its feet. I want to tackle three elements that affect small business: first, the funding environment in general; secondly, the regulatory regime; and thirdly, the access to talent.

On the funding environment, much has been said in the House over the past few weeks and months about the need for banks to lend to small businesses, but we need to consider how banks treat small businesses in general. There is an institutional bias against small businesses in terms of lending money to them. Many banks would rather not do so, because the revenue profile of small businesses is too volatile, and banks tend to see that as equity-style risk, so they stay away from it. There is also an institutional bias in terms of the absolutely critical bank charges that small businesses have to endure.

[Ms Louise Bagshawe (Corby) (Con)]

Is my hon. Friend aware of the invidious practice, so prevalent in my constituency, whereby banks ask the directors of small businesses to give personal guarantees, despite the healthy shape of their balance sheets? Such practice discourages entrepreneurs from developing small businesses.

[Mr Gyimah]

I agree 100%. For many small business men or women, the only way in which they can get the banks to give them credit to grow their businesses is to put their own assets on the line, and that is unacceptable because those people often take on a lot of risk to keep their business going. In looking at the funding environment, we need to get banks not just to lend, but to consider everything else, including credit.

It is great to see new small businesses trying to step into the breach, however. I came across a business called Funding Circle, which encourages lending by private individuals to small businesses, but that is nowhere near enough compared with what the big banks can do.