The Federation of Small Businesses is calling on the Government to champion non-bank finance to help small firms.
The FSB contrasts the experience of the UK, where successful loan applications from small businesses fell by 24 per cent between 2007 and 2010, with Germany, where the fall was just nine per cent and the US, where the FSB says government-backed loans for small businesses form an important part of the US economic recovery plan.
It wants the UK Government to encourage alternative forms of finance, such as peer-to-peer lending models, and to learn the lessons from countries like Germany and the US, where it says routes to finance are varied, local, longer-term and reliable.
Federation of Small Businesses regional chairman and Sheffield businessman Gordon Millward 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 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.
“We challenge the Government to look for short- term wins, such as helping existing peer-to-peer lenders scale up their operations, as well as thinking strategically about the longer term and the kind of financial infrastructure we need to underpin our economy and support small firms to grow.”
The FSB and the New Economics Foundation have joined forces to produce a report on access to finance for small firms, called ‘Alt+ Finance.’
Tony Greenham, head of finance and business at the 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 underperformed 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.”