Small Business Finance: a FSB view

  • 3-19-2012

Getting access to finance when it is needed and at an affordable cost will help small and micro businesses in the North East drive the recovery of the economy. However, there are still far too many small and micro businesses across the region that struggle to access finance on affordable terms.

Government action to tackle this under Project Merlin also failed. Lending to small businesses was supposed to be made easier and more accessible yet the five main high street banks missed their targets by over £1bn. This was even more disappointing given that the targets were set artificially low in the first place.

Even more worrying is the number of our members that are missing out on opportunities that would help grow the economy. In our most recent survey more than a third of our members said that they have missed growth opportunities and fear becoming uncompetitive as a result of not being able to access finance.

With all this, small and micro businesses now think that there is not much point in approaching the banks as the answer will be no. For example nearly 60% of our members think that finance is unaffordable and won’t approach the banks because of this.

To get the economy moving in the region we need to overcome these barriers, especially as the vast majority of small and micro businesses rely on the banks for finance.

Our members tell us that the banks do not understand their business and more worryingly do not want to understand the nature of their business. The days of the old bank manager are never likely to return due to the apathy within the banks towards restoring this. That being said we’d like to more banks to adopt the Handelsbanken approach and focus on good customer service rather than trying to sell businesses products they neither want nor require.

In recent meetings with a number of banks in the North East we have been told that their lending figures are up in the region and that we have some of the top performing teams in the country. We’d like to see more transparency on how much they have lent in the North East region to small and micro businesses to overcome any doubts about whether banks are lending and who they are lending to.

We’re calling on the Government to promote alternative forms of finance, such as peer-to-peer lending models and opening up capital markets for small and mid-sized firms. In our recent Alt+ Finance paper we suggested piloting a SME bond market for businesses that need finance and welcome comments in the Breedon report that suggests this.

We have called for the creation of a Small Business Administration which could facilitate small business finance. There is an ‘alphabet soup’ of initiatives which needs to be brought into one place so that we can achieve long-term, sustainable growth. A Small Business Administration would also ensure that the small business voice is at the heart of Government.

We want to see more being done to help small and micro businesses access the finance they need, when they need it and at an affordable cost. The Budget gives the Government a good opportunity to achieve this.


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