Urgent need for more business credit


Back in April I wrote here of our need to seek other sound and reliable sources of credit and suggested a specific way to achieve this by allowing business owners to temporarily tap in to their own personal pension funds to source much needed working capital without any tax penalty.

At the time I spoke of the urgency of the situation and the desirability of our reaching a position where credit bears a more normal relationship to GDP and the deposit base. If this was achieved, I argued, then the total domestic credit from Irish banks might get back to about half the level reached at the 2008 peak.

The urgency of the credit situation has increased dramatically if the latest survey on bank lending by the European Central Bank credit is correct. It has found that banks expect demand for credit to surge by almost 30pc in the current three months — but the supply of credit is expected to fall by 5pc.

While the Irish growth figure is less dramatic, the numbers still point to the credit squeeze getting tighter here. While it may not be as tight as the credit squeeze in other parts of the Eurozone, it is an issue we need to address urgently and creatively.

While the Government is right to increase the pressure on the banks to loan more and to promote greater use of the Credit Review Office by those refused credit, identifying other sources of credit is vital too.

Last April I identified personal pension funds as one possible substantial source of credit. I estimated that somewhere in the region of €1billion in business credit could be made available by allowing access to about 1.5% of the money held in managed pension funds.

Another possible source has been identified by the Institute of Taxation in their pre-budget support, namely the millions and millions held in deposit accounts in banks across the land.

There is considerable anecdotal evidence that banks have seen big increases in the monies held in personal deposit accounts as savers hold on to their money waiting for tangible signs of a return to growth.

I think the Institute of Taxation in right in identifying this as a source of credit and in its suggestion that these savers be allowed tax breaks for making their savings available for investment along similar lines to the Business Expansion Scheme (BES).

The Institute of Taxation has polled small and medium enterprise (SME) owners and found that only 15% of SMEs considered or availed of the BES Scheme in the absence of bank and private lending to businesses. Their poll also found that almost 60% of the owners of small and medium businesses believe that BES is too difficult and complex a source of funds.

Simplifying and shortening the forms and the bureaucracy is one step, but identifying the cash sources is key to the process.

This is the ground where political debate should take place. This is the issue where we should be hearing new ideas and new approaches from the opposition. So, why aren’t we?

You may – if you can tear a Fine Gael-er away from their preoccupation with shredding their colleagues for long enough – hear them utter some bland platitudes calling for more business credit but you will get no suggestion as to how it might be sourced or funded.

Or, you can chose to endure Eamon Gilmore’s one man version of the Phil Spector wall of sound as he points proudly to a stack of 45 labour policy documents that are, like him, long on rhetoric and short on specifics.

Either way, neither of the opposition parties is volunteering any real indication as to what they might do if they were in charge. But, then again, isn’t that what they do best?

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