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28 February 2012

Welsh Government should champion non-bank finance to help small firms

Reference number: PR28022012

Federation of Small Businesses

FSB News Release

February 2012

With small firms still struggling to access finance and no short-term solution to increasing bank lending, the Federation of Small Businesses is calling on the Welsh and UK Governments to look beyond the shores of the UK for innovative solutions to finance the economic recovery and growth of UK-plc.

In a new report ‘Alt+ Finance: small firms and access to finance'', the FSB is calling on the Government to promote alternative forms of finance, such as peer-to-peer lending models, and to learn the lessons from other countries where routes to finance are varied, local, longer-term and reliable. 

The report draws on examples of best practice from German and US banks that highlight fundamental weaknesses in the UK banking model: a lack of transparency and diversity of financial institutions as well as a limited local focus and control of lending decisions. 

The comparisons are stark: between 2007 and 2010 there was a 24 per cent fall in the number of successful loan applications for small businesses in the UK, compared to only a nine per cent decrease in Germany.  A similar story emerges from the US, where its Small Business Administration''s Government-backed loans for small businesses have been an important factor in its economic recovery plan.

To deliver similar benefits to UK small businesses, the FSB is calling for:

An increase in the amount of peer-to-peer lending availablewith the Government assessing the possibility of opening up its own investor account to give the sector a boost.

Community Development Finance Institutions to be brought into the mainstream and for the Government to look at the success of the US in boosting this model through Government funding.

The creation of a debt bond market for small businesses that need greater funding (upwards of £250,000) for fast growth utilising smaller investment exchanges.

Without a varied local financial system the FSB fears that the potential of credit easing will never truly be realised as Government struggles to distribute funds.

And, with Independent Commission of Banking recommendations not kicking in for several years, it is more important than ever to bring forward innovative short-term solutions, and get to work on the longer term task of building a new financial infrastructure with a local focus to protect our economy, innovation and jobs from future crises.

Janet Jones, Welsh Policy Unit Chair for the Federation of Small Businesses, said:

"In Wales, the FSB has been campaigning for some time for more competition in the banking sector and a more localised approach to small business lending in Wales.

"We know that alternative routes to finance exist in Wales, but we want these routes to be far more embedded in our financial infrastructure so that they are recognised as viable, affordable options for small businesses.

"This is about tackling financial exclusion for small enterprises that are underserved by the mainstream financial sector.

"As the report highlights, it''s 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.

"We want the Welsh and UK Governments 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."