Smaller fresh produce firms have been handed a lifeline by government as it pressures banks to continue lending, but there are fears this could lead to further instability in the trade.
Business secretary Vince Cable and Chancellor George Osborne set out a green paper warning banks they face greater government regulation unless they “get their house in order” and boost their lending to cash-starved businesses this week.
Ministers fear that a shortage of credit for small- and medium-sized firms could seriously damage the UK’s economic recovery.
The government will expand loan guarantee schemes but will seek to extend lending targets, imposed on the Royal Bank of Scotland and the Lloyds Banking Group after they were bailed out by taxpayers, to all banks unless they do more to help companies.
But analysts have proved divided on the issue. Grant Thornton director of agriculture Gary Markham told freshinfo he was concerned the government was putting too much pressure on the banks to lend.
He said: “There’s a conflict because the government is telling banks they should hold more capital and have a good cash balance but they want them to lend more and this could include ill-advised lending.
“The majority of established fresh produce businesses will find no issue finding finance from the banks. The banks have increased their charges and margins but the majority of loans will be down to sound, credible business plans and people with motivation.”
But he warned: “The smaller start-up businesses - the small produce retailers and some wholesalers - may struggle and the banks will not be doing anyone any favours by being pressured into bad lending.”
New research from the Forum of Private Business shows that access to finance is worsening. The Forum’s July survey shows that loan facilities for the 358 members on the Economy Watch member panel have declined by £66,000 during the past month, while overdrafts were down by £34,500.
“Contrary to what some of the banks are saying, some firms are still not able to access the finance they need and both business growth and economic recovery is under threat as a result,” said the forum’s head of policy Matt Goodman. “According to our members, demand is certainly there but lenders are not providing the funding or the levels of service that they should be. They are telling us that creeping costs and charges are making finance that is available less accessible.”
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