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Credit insurance scheme not necessarily magic bullet

Microscope contributor


The channel has been warned that the government creditinsurance top-up scheme is not necessarily going to be an answer for everyone.

With funding of £5bn behind it, the scheme was one of the highlights ofyesterday’s Budget, featuring as one of the main ways that the government istrying to help businesses during the recession.

But a scan of the fine print reveals some features of the scheme that means itwill exclude a significant segment of the channel, including those that havehad cover removed completely, rather than just reduced.

The first hurdle is timing with the scheme only applying from 1 April. Thatmeans that those companies that have already seen cover reduced before thatdate will not be able to claw it back through this initiative.

Secondly the maximum allowance of £1m for six months is designed to helpcompanies get through a sticky patch rather than provide long-term support.

Finally there are administration fees, meaning that taking advantage of thescheme will cost a couple of percent which will be passed back to thegovernment and to credit insurers through administration fees.

Eddie Pacey, European director of credit services at Bell Micro, said that themove had to be applauded but the channel needed to be aware it was not going tosolve all their problems.

“It does offer more of a choice to those businesses that may face reduced coverso that has to be applauded but it is not going to help all the businesses outthere,” he said.

Martin Williams, managing director at Graydon, said that because the scheme hadbeen devised hand-in-hand with the credit insurance industry the government wasnot offering an independent alternative source of insurance.

“This is taxpayers' money so the government is probably not going to throwfunds at the high risk, but for those medium risk companies in the channel thatare borderline this will be a benefit,” he said.

Fabrice Desnos, chief executive at Euler, has already played down the number ofcompanies that it is likely to have an impact on pointing out that thegovernment recognsises that “some risks will not be worth taking”.

“This scheme is a targeted answer to a multi-faceted problem faced by smallbusinesses in the country. It is a recognition of the strategic importance ofcredit insurance for some businesses but it will not, on its own, solve all theproblems currently faced by small businesses,” he said.

“We don’t expect the take-up for the scheme to be very high but if it makes adifference for a thousand SMEs where credit insurance is a significantcomponent of their business model, then it will have been a success,” he added.

He said that the scheme was designed to help those that had seen credit reducedto “buy themselves six months to manage the situation with their clients andbankers".



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