< p>The UK has seen a heated debate over the funding of small and medium-sized businesses since the start of the financial crisis - throughout the recession, there have been instances where cash promised and terms agreed have been withdrawn plus sharp increases in both rates and fees.
 
Policymakers have grabbed the headlines in attempts to tackle the problem, including Vince Cable and his plan for a Business Bank that promises £10 billion of new lending to SMEs.

Those in power may want to see promises fulfilled but with the Treasury lacking the will and banks lacking the funds - there has been little substance behind their proposals in terms of cash.

Taking a closer look at Mr Cable's vision of a Business Bank, it turns out that the success of this "wholesale funding mechanism" with a mandate to "expand lending rapidly" will not be measured by the scale of its direct interventions.

Instead, it is intended to shake up the market in business finance by "harnessing the power of capital markets" - in other words, its role is to encourage the development of private sector solutions.

Added to the mix is the £100 million Angel CoFund - backed by the Business Bank the fund is up and running with the dual objectives of supporting promising enterprises and helping to develop the UK business angel market.

It invests in SMEs with high growth potential, working in partnership with experienced business angels, and so far has supported around 30 companies, mostly new-tech.

But those seeking investment need first to "secure the interest" of a business angel syndicate which must be investing in a given business for the first time.

I am not sure where business angels rank in the hierarchy of Angelic Choirs, but in my experience they are very committed to picking a winner and I would be surprised if the Co-fund sees a rush of applications from entrepreneurs who have already managed to persuade a business angel to come on board because that in itself would grab the interest of a variety of investors.

So when it comes to the Business Bank, overall, I am sided with the Institute of Chartered Accountants England and Wales (ICEAW) whose head of corporate finance, David Petrie, believes that proposals put forward so far don’t address the needs that firms have and the finance gaps that exist.

In fact the ICEAW says they amount to little more than a "re-spray" of the Capital for Enterprise scheme.

Instead, I believe we need something along the lines of the German "Spar Cassen" bank - that is regional banks that provide the seed money for SMEs to get off the ground and grow.

Also, worryingly, the Business Bank proposals need EU State Aid Approval which apparently is not expected until Autumn 2014.

So putting aside the Angel CoFund, the Business Bank is far from open for business and I don't expect my work in commercial finance to be transformed by its conception.

Neither am I amused at reports in the industry press that Vince Cable is seeking a chairman for the Bank to work two days a week on a six figure salary!

At the time of writing, the SME funding debate has been fuelled by a new report from think-tank, Demos.

The cross-party group has raised questions about the perceived lack of funding for SMEs and the importance of SMEs in the recovery of the UK economy.

Demos claims that most SMEs don't wish to borrow from banks and that 90% of those looking for finance are successful. The think-tank also asserts that SMEs will never be the driving force behind the economic growth that ministers keep banging on about.

The report states: "The majority of SMEs are focused on remaining in business, and have no intention of aiming to be the next Google. Their challenges are cash?ow and day-to-day ?nancial management, not growth ?nance. By contrast, companies with realistic ambitions of growth are found in all sizes."

The report's author, Andrew Freeman, goes on to argue the case for two fundamentally changed assumptions:


"First, rather than thinking small, we should think growth, focusing our efforts on those businesses with the will and potential to deliver growth regardless of size.

"Second, to target the parts of the economy where growth is achievable, we may need to look beyond bank lending and devise a funding environment able to support the risks associated with innovation and start-ups."

Alarmingly, Mr Freeman also claims that the UK lacks adequate and reliable data on the SME sector. Apparently, "we do not even have up-to-date numbers on how many SMEs there are".

In summary, the study concludes that "SMEs are poorly served by a policy approach that assumes they are focused on growth" and that the challenges faced by these companies need proper identification with policy interventions to match.

Time waits for no man and we are so far from the heady days of 2007 that I wonder if surviving SMEs aren't over the hill and far away where policymakers are concerned.

The Bank of England is proposing that the all-time low base rate of 0.5% remain until unemployment is down from 2.7 million to two million, in a process that will take up to three years. However, a number of economists have challenged this timescale, suggesting that the drop could be achieved in as little as a year.

So are we looking at a case of the tail wagging the dog? While policymakers are headed down the motorway preparing to overtake, are SMEs disappearing up the slip road of the nearest exit?

I don't know the answer to the funding challenges for SMEs or what role they can realistically play in the UK's economic recovery but I am involved with them on a daily basis and am passionate about the survival of the best, so if you have any insights, or are convinced of a particular strategy, feel free to write in.