Government Must Do More to Promote Non-bank Finance

The Government is being urged to do more to champion non-bank finance as an option for small firms, the Federation of Small Businesses (FSB) has said.

Alternative routes, such as peer-to-peer lending — which allows like-minded business owners to invest in growing ventures — and community development funding schemes, where money comes from local people, could help boost lending to small firms and get the recovery back on track, the business group said.

FSB national chairman John Walker said:

“Too much time had been spent tinkering with the existing system. In its current form, our banking structure might never fully cater to the needs of the UK’s business community.”

“We need to build alternative routes that connect savers and investors with viable small businesses?and thereby introduce innovation and competition into the sector.”

Key FSB recommendations to bring greater choice to small businesses included bringing asset-backed finance into the Government’s £1 billion Business Finance Partnership fund, while emulating countries like Germany and the US which have more local banks and use community funding schemes to help grow businesses.

Small firms were typically unaware of lending alternatives other than high street banks, according to an FSB spokeswoman.

“Not every option will work for every business, but it’s important that firms know what’s available and have a greater choice,” she said.

“Alternative providers might not necessarily be cheaper than banks but they may suit the type of business better — social enterprises may find it easier to attract community funding, for instance, rather than a traditional bank loan.”

The FSB’s call for more diverse lending coincided with the launch of the Next Generation Finance Consortium (NGFC) which said it will promote non-bank finance to small firms through advice and networking events.

An NGFC spokeswoman said all types of finance would be represented, such as angel investment and lesser-known options such as crowd funding.

A Department for Business, Innovation and Skills spokesman said that the Government would make recommendations on the future of alternative finance sources “in the next few weeks”, ahead of the Budget, following an industry-led taskforce to investigate non-bank lending channels.

For further detailed analysis see Boosting Finance Options for Business (PDF)

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