Overseas models can help our firms, says FSB

THE Government is being urged to look overseas to tackle the issues still faced by small firms unable to access credit.

THE Government is being urged to look overseas to tackle the issues still faced by small firms unable to access credit.

The Federation of Small Businesses (FSB) said that other routes to finance that are popular abroad could work well in the UK.

Its Alt+ Finance: Small Firms and Access to Finance report looks at the success of different form of finance, such as peer-to-peer lending models.

It also compares the German and US banking models to the UK.

Between 2007 and 2010, successful loan applications by small firms fell by 24% in the UK, compared to a 9% drop in Germany. The report found a similar picture in the US, which has a Government facility to back loans for small firms.

The FSB also urged the UK Government to look at increasing the availability of peer-to-peer lending and consider opening its own investor account to start the ball rolling.

It is concerned that without a variety of options, credit easing will never truly happen.

FSB regional chairman Ted Salmon said: “It is only when you compare bank lending in the UK to the situation in countries like Germany and the US that you can see the extent to which our banking system fails to deliver what small businesses and entrepreneurs in the North East need.

“Too much time has been spent tinkering with the existing system when it is perfectly clear that we need to develop alternative routes to finance.

“We need to accept that 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 eager to grow, and thereby introduce innovation and competition to the sector.”

He said the Government should look for “short-term wins” to help small firms as well as thinking strategically about the longer term and the financial infrastructure of the future.

Tony Greenham, head of finance and business at New Economics Foundation, said: “Our one-size-fits-all banking system is dominated by a handful of large London-based national and international banks.

“Their global vision leads inevitably to many local blind-spots and the UK has consistently under-performed our major industrial competitors when it comes to supporting SME finance and regional growth.

“We need a richer diversity of financial institutions and funding sources to suit the needs of our innovative and entrepreneurial smaller companies.

“This report moves the debate beyond berating banks and offers a host of complementary and cutting-edge alternatives that can help the UK build a world-class domestic financial system to equal the City's status as a world-class financial centre.”


David Whetstone
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