WHY THE DEVELOPMENT BANK OF WALES SHOULD NOT ASK FOR PERSONAL GUARANTEES AT THIS CRITICAL TIME
Three years ago, this column wrote a piece about the challenges that were facing the Swansea Bay City Deal when it largely abandoned the digital future envisioned by Sir Terry Matthews, one of Wales’ most successful entrepreneurs, to adopt a strategy focused very much on buildings such as the Wellness Centre in Llanelli.
Having had previous experience of this approach and written various critiques of the failed Technium initiative which was also a ‘if you build they will come” approach, I did not make the comments lightly. The subsequent issues that have arisen over the future of the Wellness Village, including an ongoing police investigation, were not surprising and, as I predicted, have had an effect on the viability of other worthwhile projects.
Of course, speaking such truth to power has its dangers to any commentator in academia, public life or the media and I certainly received my share of personal abuse and professional criticism from supporters of this approach during that period.
But if you believe that something is not right and you put your head above the parapet to say that, then that is not unexpected especially within a small nation such as Wales.
Which brings me to this week’s subject, namely the Development Bank of Wales.
Back in 2013, I recommended to the then Economy Minister Edwina Hart, after a thorough review of access to finance for SMEs in Wales, that we should create a new Development Bank for Wales. I then subsequently chaired a task and finish group which turned the idea into reality.
At the heart of the recommendations was that Welsh business should be at the heart of any decisions made by the new bank, which came after criticisms of its predecessor Finance Wales for their high interest rates.
The Bank was subsequently launched and appointed two outstanding leaders in Gareth Bullock as Chairman and Giles Thorley as Chief Executive. Both have transformed the organisation over the last five years into a body that is valued within the business community and which implemented many of the recommendations of the Task and Finish Group.
Therefore, when it was announced that the Development Bank would be launching a new £100 million fund to support businesses in Wales affected by the Covid-19 outbreak, it seemed like exactly what was needed.
This fund would be offering all limited companies, partnerships and sole traders trading for longer than two years loans up to £250,000 fixed at 2% with an interest and capital repayment holiday for the first 12 months.
This would be in addition to the £330 billion being offered by the UK Government via the high street banks and like that scheme, it required a personal guarantee from the owners of the businesses. However, after pressure from the business community, the banks then dropped this requirement last Friday and indeed, Barclays said no such condition would be made on loans of any size.
Naturally, it would have been expected that the Development Bank would do the same but as I write this column on Thursday, they have resisted calls to do so.
Of course, some are arguing they should stick to their guns especially as public money is at risk but let’s deal with this concern.
First of all, the same is true of the public funding being provided by the UK Government to the high street banks and yet they require no guarantees. Secondly, its owner, namely the Welsh Government, has already distributed hundreds of millions of pounds as grants to businesses that will never be repaid back and is about to give out another £400 million via its Economic Resilience Programme. So why would the Development Bank insist on having guarantees that are worth only £20 million on its books?
Thirdly, the Welsh Government has quite rightly emphasised that wellbeing and mental health in the workplace has to form part of any applications for funding support and Ken Skates, the Economy Minister, is to be applauded for this. However, how does this decision by the Development Bank to ask for up to £25,000 of personal guarantees from business owners sit with that? Undoubtedly some of the businesses funded will face challenges as we go into a recession that could see a drop in GDP of over 25 per cent in the next quarter.
They are all good businesses otherwise they wouldn’t get funded by the Development Bank but these economic times are unprecedented and who can predict what will happen to any profitable business?
And when you are fighting hard to make sure your business survives, do you also need the mental anguish that if it fails, there may be a knock on your door from the Development Bank asking for you to personally come up with thousands of pounds when you have lost everything?
That is not how we doing things in Wales, or so I hoped. To put personal pressures on owners of Welsh businesses when they are desperate for any financial lifeline does not sit with the ethos we have all come to expect from the Development Bank of Wales.
If the other banks are not asking for personal guarantees then why put this undue mental pressure on over a thousand Welsh business owners at this time?
Of course, these are unprecedented times and mistakes are often made in the heat of the moment which some may think are difficult to retract. However, no-one will think any less of the Development Bank if they change their minds on this and indeed, it will show that it has listened to the business community and has Welsh business is at the heart of what it does. And most importantly of all, it is the right thing to do at this challenging time for the Welsh economy.