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19 July 2004

FSB plea for flexibility in small firms finance

Reference number: P2004/30

With small business owners increasingly turning their backs on bank loans and instead using credit cards, the FSB is calling for greater flexibility in the traditional forms of finance that are available to small firms. 


According to the FSB’s third biennial membership survey, the percentage of business owners using bank loans has fallen from 44% to 30% over two years.  The number relying on credit cards has risen from 18% to 25% over the same period.


Whilst credit card use is not without risks, its increasing popularity as a method of business finance reveals that flexibility, speed and ease of use are key concerns for business owners. 


Britain’s biggest business organisation is arguing that the current review of the Government’s flagship Small Firms Loan Guarantee (SFLG) scheme, the results of which are expected in the next two weeks, is an ideal opportunity to make the scheme more flexible.


For more than 20 years the SFLG has been the principal method through which the government assists businesses in securing bank loans.  But the current system is overly bureaucratic that businesses can wait up to six months for notification of whether applications have been successful.


Many delays are the result of duplication in the application process which requires both the bank and the DTI to approve a loan.  The FSB wants the government taken out of the loop leaving the banks to make decisions about the loans. 


FSB Financial Affairs Chairman Neil Hamper said: “There are important lessons to be learnt from the increasing popularity of credit cards notably that many businesses are not able to wait six months to get their hands on funds. 


“The Government must take a step back from the Small Firms Loan Guarantee scheme but also continue to encourage banks to offer more loans.”