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If anything is holding the economy back it has to be the lending crisis. The lack of available funds for small and medium sized businesses is the one factor consistently quoted as being a reason for poor performance and a lack of growth by business owners. They say that they don’t want to affect their credit rating by applying for multiple loans which they are convinced will be refused. It is a real fear, because overly cautious banks have been less than forthcoming.
The government took some steps towards alleviating this problem including introducing a target for loans to SME’s known as Project Merlin. This was followed by a loan guarantee scheme and more recently the Funding for Lending Scheme (FLS). Each was designed to increase the level of support for SME’s in finding business finance, but appeared to have little impact. In fact approved loans in this sector have fallen by 4% in the last year.
A further approach which was suggested by the British Bankers Association is to allow non-bank organisations including asset-backed finance companies to have access to the FLS funds available. This takes the process out of the hands of banks and would allow a more lateral process of loan application.
In yet another positive move, the recent Budget announcement stated that the Business Bank will be launched with a £300 million investment from the government and private investors. This will soon be increased to £1bn of new capital with help from the private sector in the hope of making finding business finance easier for smaller businesses.
The business secretary Vince Cable has agreed that small businesses have real trouble accessing finance and he sees the Business Bank as a long term project aimed at getting money to those sectors where it is most urgently needed. This is a view which is shared by the Federation of Small Businesses, who have wanted to see more competition in the lending sector for some time. In fact they are urging alternative finance providers to apply for funding sooner rather than later. The bank itself has stated that they want to see investments being made as early as this year.
This is a welcome boost for small businesses and for investors alike. The opening of a new channel towards investing money where it will make the most impact can only be a useful tool for the investment industry. With the bank being partially funded by the government, it has a moral, if not a legal, responsibility to ensure that access to funds is made easier. If all else fails, it will at least lead to an enhanced knowledge of the types of funding which are available.
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