Cashflow headaches are everyone's problem

The Business Secretary, Vince Cable, today unveiled a joint consultation paper with the Treasury outlining a range of options to improve cash flow to businesses, with the emphasis on putting the banks under renewed pressure to increase lending to small companies.

Cable said banks had to lend to "good British companies" and measures may be needed. The paper includes proposals for a range of financing options, including encouraging venture capital and business angels to invest more widely.

But is Cable barking up the wrong tree? Or is the availability of corporate cashflow really such a headache for the UK’s businesses?

Anecdotal evidence would certainly suggest that getting business bank loan is something akin to getting blood out of stones. And yet figures from the Ernst & Young ITEM club paint a very different picture of the financial health of British businesses.

As the authors of the latest ITEM Club forecast point out, non-financial British companies were running healthy surpluses before the crisis and these have actually risen in the past 18 months. In the first three months of this year, they ran a financial surplus worth more than 5% of GDP. And while the share of corporate profits in GDP is down a little from its peak of 24% at the end of 2008, but at nearly 22% it is still roughly in line with the average for the past 10 years.

Of course it would be nothing short of simplistic to suggest that Vince Cable is making a big old fuss over nothing. And while big companies may be swelling their coffers, there are still plenty of SMEs who are struggling to get a loan.

And although the surplus sounds like good news, it is worrying because it highlights that companies aren't confident enough in the future to invest their revenues, preferring instead to hold on to their hard-earned cash, or use it to run down debt.

Confidence, and to an extent, access to bank finance for smaller businesses, will be key to boosting private sector spending and subsequently cutting the deficit. So while you may not consider yourself an SME, making sure that those businesses at the smaller end of the market thrive is everyone’s problem.