|Vince Cable demonstrates his knowledge |
of Lending and Finance
Now Funding Circle provides an interesting new market for people to lend directly to small business, a sort of entry access VC business for retail punters. It is still quite new in that it was formed in 2010 - so loans over 3 or 5 years have not yet reached maturity meaning that the low default rate being marketed is to be expected. On the plus side, starting in 2010 means that business founded then or looking for finance were doing so in a recessionary environment so hopefully had well founded business plans.
However, it won't always be the case and some of the big lends will go belly up - then we will find out if Funding Circle can cope in a way that a larger institution can. Who remembers the Lloyds names disaster of the 1980's - I see many parallels here and the cry of something must be done to help these small investors who have risked their money way will be very voluble.More so if they then can say they have lent into Government backed loans.....
Why though is the Government getting so heavily into picking winners? Why with money directly - we are all paying taxes only to see the Government give them to Private companies to lend out again. Surely much more efficient would be tax breaks for lending to Funding Circle or tax breaks and incentives for investing full stop. The Government hate these schemes because there-in lies the kind of Jimmy Carr type tax evasion. It can't trust us so feels it must take our money and distribute it as it sees fit.
In addition, I am not a big fan of big debts being run up by small ventures. Money yes, but there is this thing called Equity. Equity is better for the long-term as you get a better reward from a business - debt is something to be reneged upon. Plus of course debt comes with interest payments and cash flow at small businesses is the be all and end off of everything. How well did it all work out when we decided in the 2000's to load everything in sight up with leveraged debt - ah yes, our ten year recession.
So this is wrong on at least 3 levels, one in creating a new market that the private sector is already serving thereby interfering unnecessarily (not that the CEO of Funding Circle will agree, he's pulled a blinder), secondly but overcomplicating something by handing out money rather than incentivising through the tax system which is far cheaper and finally by encouraging debt into smaller businesses, in obliviance to our very recent lessons on this issue.
Who is championing all of this - why Vince Cable of course!