What rescue package? Why Gordon Brown's plan to help small businesses survive isn't working!
Just one firm in 250 has been able to get a loan under a flagship government scheme designed to save small businesses from collapse, a report revealed this week. Small businesses blame many of their difficulties in securing loans under the scheme on the fact that it is administered by the banks - despite most of the money coming from taxpayers. Here, continuing The Daily Mail's Fair Deal for Small Firms campaign, we look at some of the victims of the latest betrayal by the banks...
As someone who creates jobs, pays his taxes and is a decent, loyal family man, Stephen Peters is a fine example of the virtues of honesty and hard work. At the age of 58, when others are content to ease into retirement, and countless more are living on benefits, he decided last summer to launch a new business.
A keen cyclist and marathon runner, Mr Peters drew up a detailed business plan for Hampton Court Cycles and Her Gear, two shops dedicated to cycling.
One shop in Hampton Court, Surrey, would cater to families, while the other, Her Gear in West London, would be Britain's first 'cycling boutique' exclusively for the booming numbers of women taking to two wheels.
He took the advice of others in the same field and he spoke to the banks. Their backing was vital - it would take some time before the money started flowing in and he'd need their support to cover his costs until then.
The bankers were so enthusiastic about his proposal and so confident of its success that Mr Peters ploughed almost £100,000 of his own savings into the venture.
'I was excited about it,' says Mr Peters, who has been self-employed, mainly in the fashion industry, since his 20s. 'It was a business, but I also thought I was giving something of value back to the community - good for the environment and good for people's health.'
He employed eight people. It may not sound like many, but Mr Peters and his ilk are the lifeblood of the economy - a total of 13 million people in the UK are employed by small businesses.
Defined as employing fewer than 50 people, there are five million small businesses - including tradesmen, builders, shopkeepers, restaurateurs and farmers.
But when the credit crunch began to bite, the banks upon which these businesses relied suddenly stopped lending. To prevent disaster, at the turn of the year the Government announced that £1 billion would be made available in loans from the Treasury under the Enterprise Finance Guarantee Scheme to ensure that small companies stayed afloat.
Under the scheme, which is open to businesses with a turnover of up to £25 million, entrepreneurs are able to borrow between £1,000 and £1 million repayable over ten years. However, the scheme is administered by the banks, which provide a quarter of the loan, with the Government guaranteeing the rest of the sum.
Mr Peters was faced with the sort of cashflow problems encountered by most businesses. The banks which had once been so enthusiastic about his business refused to lend, so he applied for an £80,000 loan under the Enterprise Finance Guarantee Scheme.
He was turned down - despite seeming to be exactly the sort of business it was designed to help. Why? In his case, he was told that he had too many assets to qualify.
His family home would have to be sold first to prop up the business. Incredibly, one banker admitted that a foreigner without a home would be allowed to borrow £1 million because he had no assets. But a Briton with a home would not be allowed to do so.
He said: 'The gap between the rhetoric and the action is huge. It's like that old sick joke - the operation was successful, but the patient has died.'
All of which has made Mr Peters very bitter. 'I don't sleep,' he says. 'I think about what's going on all the time. I think about the Government and the bankers with their guaranteed salaries, gold-plated pensions - and they want us to trust them? They are immoral and corrupt.
'There are countless people in my position. Everybody - except Gordon Brown - knows what's wrong. The frustration of the middle classes is unbearable. We are too educated and too sensible to take to the streets. But what's the point of going on?'
This is not an isolated case. Hundreds of thousands of small businesses are on the brink of disaster thanks, once again, to the banks. Even the Government admits that so far only around £40 million has been awarded in loans.
Computer company Dot Net Solutions, based in Surrey, which develops software packages for firms, applied to Barclays for £100,000 under the scheme. The bank refused, saying it could not 'take the risk'.
Dan Scarfe, who set up the company in 2004 with his brother, says: 'They are just not interested, and there's no one you can appeal to. The banks are judge and jury.'
They are also executioner. These entrepreneurs will not say so, but many are facing a visit to the Royal Courts of Justice in Central London, where the 'winding up' court sits every Wednesday.
In hushed tones, more than 300 small businesses are put into liquidation by creditors - often the banks - at hearings each week. The numbers going bust have trebled in the past three months. The only beneficiaries are the lawyers, more than 30 of whom were in court this Wednesday as, one after another, businesses were 'wound up'.
In stark legal jargon, I listened as scores of British businessmen and women were left shattered as their livelihoods were destroyed. A 'transaction' takes less than 30 seconds - a brutal denouement to the hopes and dreams of the hard-working entrepreneurial classes.
While the companies varied from carpet weavers to tanning salons, most shared a common problem: credit. In short, many are still viable businesses, but have encountered difficulties finding enough cash to keep going until they, in turn, are paid for their services.
One businessman, who runs a sports company and holiday park, has a turnover of £1 million a year. But he needed a loan of £150,000 to keep going during the winter months. He asked Barclays for a loan under the rescue scheme, but was told that, under the rules, the money could not be loaned to 'cover existing debt'.
To make matters worse, the very banks that are withholding the government money are also imposing punitive interest rates on the businesses for any outstanding loans.
Roy Seaman, who advises small businessmen on how to set up franchises, was told by Barclays Bank that despite interest rates falling to historic lows, his outstanding debts would be charged at 4.95 per cent above base rate - an increase from the 3 per cent which he had been paying.
Countless others told me similar stories. With exquisite timing, the banks claim they have to charge more to make up for the lack of business caused by their punitive rates.
So, while insisting that they still deserve billions in bonuses this year, despite being saved by taxpayers' cash, these very same bankers are deciding the fate of thousands of businesses - and millions of families who depend on them - by increasing the cost of loans.
David Kern, chief economist at the British Chamber of Commerce, says small businesses are in dire straits.
'We need to do everything we can to help these businesses to survive, whether it's by scrapping the minimum wage or regulatory things like maternity leave and national insurance - or else the economy will suffer even more.'
The Federation of Small Businesses (FSB) also warns that all of the Government's 'initiatives' to ease the crisis - from VAT cuts to the guaranteed loan scheme - have achieved nothing.
In a poll, fewer than one in ten small businesses said banks were making the Enterprise Finance Guarantee available to them. To add to the chaos, many are waiting for longer than ten days to be paid for public sector work, even though the Government pledged that it would work to speed up payment times.
In a separate poll, 97 per cent of small businesses said the VAT cut from 17.5 per cent to 15 per cent has had no impact on their trade at all - except to add costs for changing systems.
Back at Stephen Peters' cycling shops, he is contemplating the harsh realities of life without a steady flow of cash. He has already had to lose five members of staff. Two are taking him to a tribunal for unfair dismissal.
He says they are right to do so - but he could not afford to pay them off because the bank would not lend him the taxpayers-funded loans. So he is facing up to the prospect of going bust, too, though he insists he will fight on.
What can be done? More than anything, he says there must be honesty from the Government, not the pretence that schemes have been set up to save millions of jobs when they exist in name only.
'We are at our best when our backs are against the wall,' added Mr Peters. 'We are a creative, determined bunch with values. We need leadership. But at the moment we can't believe anything we are told. Confidence is the key to business.
'What's happening is verging on criminal. At the end of the day, we will all pay for the actions of these banks and this Government. Not just us - but future generations, too.'
Source: Money Mail
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