More Competition Needed to Free-up Small Business Lending

Business groups have called for more competition in the retail banking industry, after figures revealed high street banks fell short of their 2011 lending target to small businesses.

Describing the news as a “wake-up call”, the Forum of Private Business (FPB) said banks needed to offer better value products and simplify their lending criteria to combat falling demand for bank finance among small firms.

The Federation of Small Businesses (FSB) has called for “better promotion of alternative sources of finance” in response to the figures that show the five main high street banks fell short of the £76 billion Project Merlin target agreed with Government.

Although the banks exceeded their wider target of lending £190 billion to all UK businesses, they fell £1.1 billion short of the agreed small-business lending measure.

FSB national chairman John Walker accused the banks of ignoring the needs of their small-business customers:

“This shows that money is going to bigger businesses and not fledgling firms that need it to take advantage of growth opportunities that are there even in these challenging times.”

Banks themselves have blamed the shortfall on lack of demand — figures from the bank-funded Better Business Finance campaign showed that just 4 per cent of small and medium-sized businesses sought a bank loan in 2011. But of these, one third were rejected.

Business groups said that low demand and the high rejection rate were down to banks making it too costly and difficult for small firms to obtain loans and even overdrafts.

“Our helpline receives complaints from members every week over increasing costs associated with bank products and the removal of overdrafts — these actions don’t help,”

said FPB chief executive Phil Orford.

But a spokesman for the British Bankers’ Association (BBA) said businesses often didn’t help themselves.

“We have quite a few cases where businesses apply for the facility, but they haven’t produced the right business case or they don’t have a ‘Plan B’,” he said. “Banks want to lend money, that’s their job, but they also want to get it back. Some people are simply deciding themselves that the banks won’t lend the money and don’t apply.”

The Government has not set lending targets for 2012, but is promoting a programme of ‘credit easing’ instead. Among other things, this will see £20 billion pumped into the small-business economy over the next two years through the National Loan Guarantee Scheme.

But the FSB has called for Government to push ‘alternative’ sources of lending, such as private sector finance providers and peer-to-peer loan platforms, to “help small businesses access credit on better terms.”

If you’re looking for business advice on the subject of lending to small business then take a look at these business advice articles on:

More Competition Needed to Free-up Small Business Lending

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