Feb 28, 2012

Government should encourage alternative lending to support small businesses

Money symbolsThere is an urgent need to boost lending to the country's small businesses. To achieve this, the government can look at an alternative solution than just focusing on tweaking the current banking system, says the FSB. The Federation of Small Businesses has called on the UK government to back alternative lenders.

Non-banking finance providers like micro financing firms and peer-to-peer lenders can come to the aid of companies that are in dire need of funds, even as banking reforms are incorporated, feels the FSB. FSB Chairman John Walker said that it is important to understand that the present banking structure may not be able to fully meet the financing needs of the country's small business community. So, alternative funding routes that bring together small businesses and investors, must be encouraged. The FSB also said that the government should bring back asset-backed finance in its BFP (Business Finance Partnership) scheme for SMEs, as one out of every three businesses opts for this financing form.

From 2007 to 2010, there was a fall of 24 per cent in the rate of successful loan applications from SMEs. During the same time, the number of approved loans fell nine per cent in Germany. It has been seen that the UK's retail banking industry does not operate quite as transparently as its American and German counterparts. In these countries, the decision to lend to small businesses is delegated to local bank branches. While the government ponders upon reforms, it can promote peer-to-peer lenders in the interim to remove the financing hurdles faced by small businesses.


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