F&C backs credit-easing for small firms

F&C director of global strategy Ted Scott has backed Chancellor George Osborne’s plans for credit easing for smaller and medium-sized companies.

Addressing the Conservative conference in Manchester on Monday, Osborne announced a new programme of credit easing to support business lending.

Credit-easing refers to buying or guaranteeing private sector assets such as corporate bonds or SME loans in order to inject money directly into a particular part of the corporate sector and get credit flowing.

Treasury officials say the process is a more targeted version of quantitative easing, with the Government seeking to find people buying corporate bonds or SME loans and encouraging them to buy more or buying them directly and creating demand.

The aim of the policy is to free up credit in specific sectors of the market. Policymakers believe this will help avoid future cre-dit crunches.

Osborne will provide further details of how credit-easing will work in his autumn statement on November 29.

Scott says: “Businesses, particularly smaller businesses, are finding it difficult to obtain cre-dit from the banks. Banks are so fearful of corporate risk that they are loath to extend credit to smaller businesses.

“The liquidity of smaller companies makes it difficult for them as well. It is hard to sell shares and if you get someone aggressively selling shares, that could have quite a big impact on the share price.

“However, it will not have a huge impact on the corporate bond market overall as it is only for smaller companies.”