Vince Cable to bundle SME debt and sell to investors
By Michael Northcott Friday, 09 November 2012
The latest wheeze from Saint Vince of Cable, the business secretary, is for the government's new Business Bank to sell business debt on to investors. Hmmm.
Cable’s steady trickle of ‘initiatives’ has certainly got the sceptics a-chattering, but this time he’s announced an agency for business lending which would package loans to SMEs into varying types of bonds. It would then back these bonds with a state-issued guarantee, in the hope that this could mean more cash enters the debt market for small to medium sized enterprises.
Critics see the practice, which is known as ‘securitisation’, as containing some of the same elements that actually led to the credit crunch and economic crisis in the first place. Cable told the Daily Telegraph today that such a system would have to be very carefully designed to avoid getting back into the risks that have become associated with securitisation since the financial crisis. He said: ‘An agency is part of the current thinking. We’d need to think it through very carefully and decide exactly what role government guarantees and financial support would play.’
He added: ‘A new version of securitisation does have a future. Various attempts have been made to re-launch is since the financial crisis and none have quite worked. But it’s one of the ways to get money into small businesses and we’ve got to try everything because there is a serious problem of supply of finance, not just demand.’ The plan comes just a couple of months after Cable announced the government’s new Business Bank back in September, designed to help SMEs get their hands on some cash. The idea is that the taxpayer puts up £1bn as a vote of confidence so that other private lenders would be encouraged to put up a further £10bn of lending capacity.
As with all of these initiatives however, a recession is a recession, and we’re just not sure that such financial engineering is really the answer to SMEs’ problems. And anyway, banks tend not to want to lend the kind of venture capital money that is needed to get the start-up economy motoring…
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