The European Commission has, for some time, insisted that business regulations and practices should always have at their core the interest of SMEs and micro businesses. Bank credit is the lifeblood of every business, even more so for small businesses that often have to struggle to convince large banks used to dealing with big corporate clients that a small business may still have a winning formula.
The task for securing bank credit is more difficult for small businesses in the prevailing tough economic scenario where banks have become more risk averse and often shy away from lending to smaller businesses that are perceived to be more exposed. It is indeed disappointing that some banks in Europe are reportedly borrowing money from the European Central Bank at very low rates to buy good quality sovereign debt while they still refuse to provide credit facilities to the small businesses that are the backbone of most economies.
In this context, the introduction of a Micro Guarantee scheme, through which the government will provide loan guarantees for investments of up to €100,000 is, therefore, a welcome development that should help small enterprises to consider investing in the infrastructure of their business.
In Malta, like in most other EU countries, SMEs and micro businesses form the great majority of enterprises and even if, individually, they may employ just a few workers, collectively they are important creators of jobs and promoters of economic growth.
Past schemes like MicroInvest and MicroCredit have attracted applications from 2,800 businesses that have benefitted from €160 million worth of funds. Even so, the Chamber for Small and Medium Enterprises – GRTU has, at times, complained that local banks are becoming increasingly reluctant to open credit lines to micro businesses.
The involvement of Malta Enterprise to assess the investment proposals made by applicants under the Micro Guarantee scheme, as well as the participating banks’ own credit assessment, should ensure that the cost of running this scheme should not be a burden to taxpayers who will, ultimately, be the ones underwriting the guarantees.
Only three banks serving the local SMEs market are participating in the scheme. It would be interesting to know why HSBC and APS Bank, for instance, are not included in the list of banks that will be providing credit under the scheme. SME clients of non-participating banks will have to consider taking their business elsewhere if they want to benefit from such a scheme.
One hopes that all banks serving the local market understand the strategic importance of supporting small businesses, even if there may be better profit opportunities elsewhere.
The Micro Guarantee scheme will not in itself resolve all the challenges being faced by SMEs in the current difficult economic climate. Small businesses, for instance, need to be freed from certain bureaucratic practices that add too much administrative costs. They must also be charged market prices by government-controlled enterprises that provide essential services like water and electricity. But they should also restructure their business models to ensure that they satisfy their customers’ needs.
Most small businesses in this country have still not embraced information technology fully in their quest to provide a better service to their customers. For instance, while many of them today have their own website, these are not always attractive enough to lure customers to buy from them. Investment in new technology to promote online sales could be one example of how the Micro Guarantee scheme could help small enterprises.