Groups call for SME finance reexamination

Friday 29 August 2014

A number of groups for limited companies, sole traders and other small and medium-sized enterprises (SMEs) have called on banks to reexamine the way that they agree funding for these groups.

This comes after a survey conducted by the Forum of Private Business found that 37 per cent of small businesses that sought business loans were turned down by banks and could not obtain funding from any other sources.

Bank lending to SMEs has been in decline ever since the onset of the economic crisis due to the fact that financial firms were reluctant to take on any more risk by agreeing loans with businesses.

The UK government has tried to encourage more lending to SMEs through such initiatives as the Funding for Lending Scheme and by keeping the base rate at a record low 0.5 per cent.

However, there have also been other movements in regulations that have made lending more difficult. For example, banks have been told that they will need to shore up more capital to act as a safeguard against future risks. As a result, this has left banks with a lower amount of money to agree loans with businesses.

The Federation of Small Businesses (FSB) and freelancer organisation PCG has criticised the reluctance of banks to lend to businesses, explaining that a lack of finance could result in the failure of a business.

Additionally, the organisations reminded banks of how important it is for the economy for small businesses to succeed. Indeed, government ministers have previously described SMEs as the 'lifeblood of the economy'.

Speaking about the way that many choose to work in the UK, chief executive of PCG Chris Bryce said: "For those in self-employment who want to develop their business, a small business loan could be the difference between success and failure. The amount of people choosing to go self-employed is growing day by day. Going it alone is now the preferred option for starting a company and if we want these individuals to become the successful businesses of tomorrow the banking culture must change."

Adding to this, the FSB has called on the Competition and Markets Authority to review the financial market to ensure firms can get the access to finance that is so vital to growth.

National chairman for the FSB John Allan said: "While Funding for Lending has had an impact on the price of credit, the trend in lending suggests there remain issues with credit allocation through the banks. That is why we believe the Competition and Markets Authority needs to review the market."

He noted that business confidence among SMEs has been growing for some time, across a variety of sectors and in every region of the UK. However, this could be hindered by the fact that businesses have been unable to gain cheaper credit.

Mr Allan also welcomed the move by the government to encourage banks to send loan applications that they have rejected to alternative finance providers. However, he added that these alternative providers need to be able to see credit data so they can make a good decision on lending.

By Victoria McDonnell

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