Unwillingly footloose entrepreneurs

Via Daniel Davies, a side-effect of the UK housing crisis I hadn’t thought of: it’s screwing small business startups.

Business loans in the UK have, apparently, tended to be secured by re-mortgaging the founders house. That kluge has worked moderately well — entrepreneurs have typically been white men in the forties, often with professional experience. These are people who, in the past, have been likely to have bought their own house and largely paid down the mortgage.

Not any more. Even the professional classes can no longer afford their own homes, at least in London and the South-East. So there is no equity to secure a business loan. So businesses which require capital just don’t get started…

And if you have a generation of businesspeople who don’t own houses, and who therefore can’t be fit into the historic template of British small business lending, then you’ve got the impetus for a total reinvention of small business finance in the UK. The banks which realise this first will do best, and if the incumbents don’t then entrants will. Arguments of the form “this problem has to be made worse to heighten the contradictions so that real change will come” always sound a bit Leninist, and have a pretty bad track record as either predictions or policy advice. But in this case, all of the contradictions have already been heightened, as the result of other policy choices made which had very little to do with industrial policy at all. Nobody has really given much serious priority to the need to re-engineer business finance in the UK, but we’ve now reached a point at which the old way of doing things is no longer possible.

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