Funding Circle, not banks, will save SMEs

In theory the banks could help them more but in practice it is not going to happen even with the Chancellor's latest wheeze. The fact is that modern bankers prefer to lend to other financial institutions or buy exotic financial products, and they have lost most of the skills they once had in knowing how to judge which businesses are worth lending to. The truth is that the potential for losses on SME lending scares them and even if they wanted to jack it up dramatically they don't have the people to do it.

But there are others who could. The great disappointment yesterday was that Osborne did not take the opportunity to offer support to groups such as Funding Circle - a new type of organisation (backed by the likes of Jon Moulton of Better Capital, Edward Wray of Betfair, and Carphone Warehouse's Charles Dunstone), which has the potential to replace banks.

Its business model is quite simple. It has a credit assessment team - drawn from the ranks of ex-bankers - who assess the creditworthiness of small businesses looking for loans. At the same time it uses the web to mobilise individuals with cash to lend. Those SMEs which pass muster then get their loan needs met by the private investors. It is in fact an exchange which SMEs go to for loans, just as the stock market is an exchange which they go to for equity. Those lending the money incidentally earn on average 8.5% - which is a lot but still less than SMEs usually have to pay when charges are taken into account because there is no vast banking infrastructure to be paid for.

From a standing start a year ago, Funding Circle is already lending more than a million a month - usually in amounts of £5000 to £100,000 - but with only a fraction of the encouragement given to banks it could do so much more. It would be a simple matter for example for the Government to allow any loan provider's losses to be tax deductible - as they are in the banks. Better still, the loans could be made tax deductible in the same way that equity investments are under the Enterprise Investment Scheme. Both would surely increase the flow of funds. Alternatively - or indeed additionally - the Government could guarantee the safety of the loans as was done way back in the Thatcher years with the Small Loans Guarantee Scheme, an earlier desperate attempt (in case you hadn't guessed), to get banks to lend.

No one is offering this as a quick fix - it will take years for these web-based firms to get to a size which matches the banks. But Osborne's message yesterday was that we are going to be in this mess for years. All the more reason one would have thought for him giving them some real encouragement.

After all bank shortcomings in this area are not new, and nor were they when Margaret Thatcher was in trouble. The Macmillan Report of the Thirties was commissioned because small firms could not get loans and that was 80 years ago. It is surely time we accepted that the banks are not about to change and try something else.

BSkyB shows how high-handed boards can be with investors

The investing institutions are frequently criticised for not using their power to influence boardroom behaviour, but yesterday's annual meeting of BSkyB underlined just how difficult it can be when they try.

Before the meeting, institutions had let it be known that they were unhappy with James Murdoch continuing as chairman partly because of the phone-hacking and other goings-on at News International, and partly because they simply don't like the idea of the chairman being so closely linked to a major shareholder - the Murdoch interests owning 40% of the satellite broadcaster.

Their objection was not personal - it was good governance. But when it came to the crunch, senior non-executive director Nick Ferguson - he who in earlier days in private equity achieved fame by saying it was wrong that his cleaner should have a higher marginal tax rate than he did - batted aside the criticism. He and the other non-executives did not share it.

Murdoch was indeed a good chief executive at BSkyB and a knowledgeable chairman but that has not prevented him from becoming a toxic brand. Ferguson's dismissal of these shareholder concerns therefore shows a lack of empathy surprising in someone of his experience and strong links to the fund management industry - the more so because those who no longer wanted Murdoch or abstained from supporting him mustered a 45% share of the non-family vote. This was no flimsy protest.

Alternatively it could simply be a case where the board knows the game is up but prefers not to do the right thing straight away because they think it will look like they are giving in to pressure from the media. It would not be the first time boards have opted to be wrong but strong.

However, if this is indeed the explanation it should provide only a temporary respite. It suggests that Murdoch will indeed resign as chairman but at a time of his own choosing. Provided it is within the next 12 months.