We live in stupid times

You may neve have heard of Ketech, but they are a profitable UK business with turnover of £16m and they make all sorts of electronic devices, such as CCTV systems, explosives and drug detectors and all manner of gizmo for the modern world. Exactly the sort of company that should be encouraged, but when they went to their bank (HBOS) for a loan to finance the fulfillment of orders they had on their books, they were turned down.

It seems that while one part of the government (DTI/BERR or whatever it is called this week) is telling banks to lend as much as possible, and another part (the Bank of England) is buying up banks' assets so they have plenty of cash to lend, a third (the FSA) is telling banks that they need to improve their capital ratios, which implies either a rights issue, which the government is resisting or curbing lending, and a fourth (UKFI) is telling them to maximise the value of their shares in the short term.

Into all of this government made mayhem rides Lord Mandelsonwith his £75m Capital for Enterprise Fund.

"Here peasants", cries the smarmy Lord, "gratefully accept this £2m cheque while I pose for these cameras over here. Right. I'm off. I have to do more of these visits before the next General Election. We announced in April we announced we had 300 applications for these photo-opportunities and four months later we have identified um... 4 companies for funding."

I have no idea whether the £2m, which amounts to around 45 days turnover for the company, is enough for their purposes, but I have the following tip for the directors:

Take some of your government-provided £2m cheque down to the government-owned HBOS (or any other cash you have lying around) and offer it as a fee for a loan for 10 times as much. The fee goes straight to the bank's profits and with no tax to pay for years, is added to the bank's Tier 1 capital. This will allow them to lend you without lowering the banks' government-regulated capital ratios.

If the government is willing to put taxpayer's cash at risk by injecting equity capital into your company, why would a government-owned bank turn you down for a loan?

Then again, we live in stupid times.