All change for SMEs - a look at recent government announcements

The last week has seen a number of important announcements for SMEs. A range of issues including bank finance and public sector procurement have come under the spotlight.

But the implications of these announcements can be confusing for business owners. So what has happened over the last week, and how does it affect you?

Project Merlin

The surprisingly titled Project Merlin was amongst the biggest announcements of the last fortnight. But the deal, which was intended to demonstrate the government’s tough stance towards the banking sector, ended up being heralded a damp squib by some, and “weak and waffly” by others.

But what is Project Merlin, and how will it affect your business?

Project Merlin is a wide-ranging deal between the banks and the government, which the government said they hoped would help break the lending deadlock currently affecting businesses. It was also thought that Project Merlin would place some sort of restriction on bank bonuses, at least for those banks that are now part-owned by the taxpayer.

The headline figure from the announcement was £76 billion – this is the amount that the banks are supposedly obliged to lend small businesses during the course of 2011. That sum will come from a total of £190 billion of business lending.

In reality, though, small businesses will not necessarily get as good a deal as this figure might suggest. To begin with, there is no enforcement mechanism for this lending ‘commitment’. The Bank of England will be charged with making sure that banks live up to the deal. But it is crucial to remember that lending decisions will still be made based on conventional, commercial lending criteria. This means that banks will still be able to pick and choose who they lend to – and, if the anecdotal evidence of thousands of spurned businesses across the country is to be believed, this means that many stable, viable firms will continue to be rejected by lenders.

It should also be noted that the figures refer to gross lending. This means that, if businesses continue to pay down their loans at their recent rate, the ultimate net lending figures for 2011 could well be negative. Many business groups have called on the government to instead force the banks to commit to a positive net lending figure.

Commentators and politicians were quick to dismiss Project Merlin. Liberal Democrat Lord Oakeshott was forced to resign after he described the deal as “weak and waffly”, while Channel 4 economics editor Faisal Islam said it “lies somewhere on the spectrum between charade and sham.”

SME procurement

Project Merlin was not the only big announcement for SMEs in the past few days. Buried at the end of last week, but with potentially significant implications for small businesses, was a speech by David Cameron setting out changes to the public sector procurement process.

The Prime Minister announced that he wants to make it easier for small businesses to access the procurement process – an aspiration also held by the previous government, who made major steps with innovations like Supply2Gov.

Mr Cameron wants to see a larger proportion of government spending going towards small businesses – which can, in theory, only be a good thing. Perhaps the most eye-catching part of the announcement was the launch of new Dragons’ Den-style panels, which will begin in Birmingham in April. These panels will give innovative small businesses the chance to pitch their ideas to central government, even when tenders for their services do not currently exist.

The second important part of the announcement was a change in the way public sector tenders are presented. Central government contracts will now be advertised on the ContractFinder website. At the moment this only applies to contracts with a value of £100,000 or more, but smaller opportunities will be listed there from April. Local government contracts will not appear on ContractFinder.

Finally, in a move that will cause sighs of relief for many businesses, contracts with a value of less than £10,000 will no longer include a requirement for applicants to complete a pre-qualification questionnaire (PQQ). It is hoped that this will remove a major barrier to entry for the smallest firms, many of which simply could not dedicate the resources needed to complete these often lengthy documents.

There may be trouble ahead…

All in all, therefore, it has been a potentially important couple of weeks for British SMEs. But there is concern that the economic forecast may be looking rather bleak for the UK. Look out for our round-up of economic opinion in the next few days.