Chancellor launches consultation to improve access to finance

Tuesday 1 April 2014

George Osborne has launched a consultation that will help those setting up a business who are unable to access finance.

The chancellor told an audience at the Federation of Small Businesses' 40th anniversary conference how new proposals would make it easier for small to medium-sized enterprises (SMEs) to find alternative loan providers when they have been rejected for a business loan by the banks.

While the big banks do currently account for over 80 per cent of SME finance relationships, new forms of credit are being created in the UK and are becoming more and more popular.

The new consultation will ask if the government should legislate to require banks to release information about SMEs they reject for finance to alternative lenders so they can be approached by the credit providers.  

It is hoped this will lead to the creation of online platforms that will allow lenders to find SMEs looking for finance that have been rejected the first time around.

With over half of SMEs trying to secure a loan getting turned away on their first attempt, the government has certainly identified a niche.

What's more, the majority of those rejected by banks don't try again, meaning the UK is missing out on new businesses.

"The success of small and medium-sized business is key to the government’s long term economic plan," Mr Osborne said. "That’s why we are fully focused on making sure businesses can get the finance they need to grow and create jobs. This includes actively supporting innovative new forms of business lending."

This will include peer-to-peer lending and crowd funding in the hope the gap will be bridged between SMEs and alternative lenders.

"A big bank saying ‘no’ should not be the end of the line for a small business," Mr Osborne continued. "Now, with our plan, it won’t be."

Business secretary Vince Cable added that by putting rejected SMEs in touch with alternative lenders, it is possible to ensure the "potential of the country's small businesses isn't lost".

The Federation of Small Businesses has welcomed the proposals, claiming the measures could help increase competition in the market.

Without access to finance, setting up a business can prove nigh on impossible. While lending conditions are broadly improving, it has been acknowledged that companies - small ones in particular - are still struggling.

While lending is strengthening, conditions for SMEs haven't improved to the same degree as those for households.

In the final quarter of 2013, net lending to households and businesses through the Funding for Lending scheme stood at £5.8 billion. Furthermore, in the four months to January 31st 2014, 31 FLS participants made net drawdowns of £18.8 billion. However, SME lending continued to lag behind.

To this end, the government has also recently announced the extension of the Funding for Lending scheme solely for businesses -  a move Matthew Fell, Confederation of British Industry director, believed is the right one.

He claims that demand for finance from SMEs is likely to increase as the economy improves and the Funding for Lending scheme needs to be there to support it.

It is hoped that the new policies will help encourage banks to lend and refer those they reject onwards.

By Victoria McDonnell

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