The implementation in the EU of the “Basel III” rules on capital requirements for banks is fast becoming a source of concern for SMBs, as they believe it will result in considerably higher trade financing costs and tighter credit conditions for small and medium-sized businesses as well as start-ups.
The irony of this regulation, devised to safeguard consumers is that it could do the opposite for one of the most vulnerable sections of the business community made all the more unstable by the current economic conditions in Europe.
Looking at what SMBs said were their biggest challenges for the next 6 months in Sage’s most recent Business Index – rising costs, uncertainty in the local economic market and reduced cashflow were the top three concerns. Add to these the inability for a small business to access credit and we could be looking at the “perfect financial storm”. Some might say we already are. But we know from this and past Sage Indices that SMBS are a hardy lot which have already weathered a number of years of harsh trading environments.
With high levels of unemployment across Europe, the contribution of SMBs cannot be underestimated and anything that affects a business from being able to invest and grow could ultimately cause more damage than good.
Meanwhile, the UK Government has unveiled a £100bn package “funding for lending” scheme. It’s aimed at helping banks increase lending levels against the backdrop of the worsening crisis in the eurozone. The new scheme could support up to £80bn of new loans many of which are earmarked for small businesses looking to expand.
The Bank of England suggested the funding for lending scheme could be in place within a few weeks. If this works in the UK, perhaps it would be wise for the regulators to revise the way banks across Europe are allowed to lend to SMBs to ensure a level playing field and support trading with companies overseas.
With the deadline for Basel III looming and threatening to add to the burden of new regulation for SMBs, it’s important government tailor these for smaller organisations in order to avoid unhelpful and unwelcome consequences.
