What do you do if you are refused a loan for your struggling small business from the bank? Ask Gordon, of course. And why not – what do the banks know anyway? They only have decade upon decade’s worth of experience and expertise on who is sensible to loan to and who isn’t. Besides, as we all know, Mr Brown seems to have more money than he knows what to do with at the moment and what better way to waste invest it than through the state funded small firms’ loan guarantee scheme? The figures speak for themselves - almost 35% of Government loans end in default compared to 4% of commercial loans to small businesses.
The government is not adequate to judge and carry out such initiatives. It does not have the skills and capability to administer loans effectively. Therefore it is not surprising that the scheme is failing. Such tasks need to be left to the domain of commercial banks that have years of experience. But as always, the government knows best (or so they think).
The government needs to understand that the taxpayers' money is there not for their trial and error purposes but to ensure safe and effective environment without overburdening companies with their rules and regulation. If they manage (or more importantly, if they'd have the desire) to achieve this, small, medium or large firms would not need its cash boost.
As with so many other government initiatives, the authorities pump in piles of cash only later discovering that it is not working. But the real problem with so much that the Government does is that it seems nigh on impossible for them to stop doing it. The loan guarantee scheme has been around for over twenty years so far. What's the betting that it will still be failing in another twenty years?