Government should promote private finance, not force banks to lend

Government should promote private finance, not force banks to lend

Wednesday's Budget should try and help the private sector financing industry, rather than more futile attempts to get the banks to lend, says Anil Stocker

THE GOVERNMENT’S FLAGSHIP lending scheme, Funding for Lending (FLS), released disappointing figures last week, showing that only a small proportion of the available funds had been drawn down. The big banks have been retrenching their lending to small businesses; this was seen in the 6% reduction of the approval rates of SME loans in Q4 of 2012. The plans expected for the Budget are mostly variations on a tired theme.

Every day here at the NGFC we hear from well-capitalised and well-run small businesses that can’t find finance from the banks without unpredictable fees or onerous guarantees.

That’s the reason why 12% of small firms are financed through personal credit cards.

Accountants often find it difficult to suggest original funding mechanisms to their clients. Thankfully, a raft of new, innovative finance providers using online platforms are directly deploying capital from investors looking for returns to the small firms that need it. Companies like Funding Circle, Crowdcube and MarketInvoice have now channelled hundreds of millions of pounds to SMEs.

The government wants to set up its own Business Bank to directly increase government funding into small and medium sized businesses, but the private sector has already solved this problem. All that is required is for more SMEs to be aware of the funding options that are available to them.

In the upcoming Budget, Mr Osborne should stop trying to force a square peg into a round hole, giving the banks money that they can’t, or won’t, get to the small companies that need it, and embrace the private sector solution that’s already getting the job done.

The companies that are members of the NGFC are part of the new ecosystem of finance, efficiency driven by real competition and market forces. Only a weak Budget would not acknowledge what they can do for small companies.

Anil Stocker is head of policy at the Next Generation Finance Consortium

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