Why should banks invest in small business?

Was anyone listening to Radio 5 this morning? Wake up to Money had Adam Posen sounding off about the banks not lending to small business. Adam Posen is a member of the banks monetary committee, who a year ago predicted slow down and risk of unemployment. You can listen to the programme here http://www.bbc.co.uk/programmes/b01bb9sy but he describes bankers as risk averse jerks which made me laugh

He thinks that banks have over-reacted and cut back on small business lending to mend their balance sheets

I so agree with this that if I hadn't been so warm in bed I would have stood up and cheered.

A year ago we approached our friendly and accessible bank manager to raise money to support our growth. We have to pay our fair trade suppliers when we place our orders so growing as quickly as we are causes us some problems.

Our lovely bank manager agreed in principal and then fed all the information in to Head Office. The result? Yes we could borrow what we wanted and more but at a 11% interest rate, with our homes put up as surety and a £2000 admin fee.

We're not stupid, and these terms were too silly to consider so we didn't proceed.

This is just one story from a soft toy wholesaler, but how often has this story been repeated in the last 12 months? How many more of us could be growing and creating jobs and wealth if we had investment?

The Prince of Wales' Duchy food range is a great example of how accessing finance can make a huge difference to a busines. In 2010 sales of organic food fell by 10% but  Duchy Originals's sales jumped from £1.23m to £2.37m and the company turned a loss of £537,000 into a profit of £2.25m in the year to March 2011.

How did they do this? Waitrose invested money in to the brand and its range and the rewards are obvious. They were able to grow the business as they had the finance to introduce new products and market their brand

However good your business, brand or product is you need investment to grow otherwise you get caught in what we call the Elves and the Shoemaker trap. Make one pair of shoes at a time and wait to sell them before you can buy the raw material to make another. Not the best way to run a company

So heres a big cheer for Adam Posen. Hopefully people will start to listen to him and the UK's small companies can start pulling the economy in the right direction

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