Banks leave small businesses struggling

The Forum of Private Business has put forward a proposal calling on the Government to pressure banks to address the lack of lending to small firms.

The Bank of England figures show it has got steadily worse during the last six months leaving small businesses struggling to access money despite orders in the pipeline worth hundreds of thousands of pounds.

Banks seem to be refusing to accept that strong orders and letters of credit prove the small businesses are viable.

Two papers have been served to the Commons Committee inquiry aimed at giving the power back to local bank managers so they can take a more in-depth look at individual cases and take into account evidence such as recent orders when deciding whether to approve loan applications.

There is widespread concern that small firms could go bust unless action is taken, with potential closure the worst case scenario. The Forum's Finance Director Nick Palin said: "The private sector and small business growth in particular is expected to lead sustained economic recovery but bank lending is getting steadily worse. Worse, even, than six months ago when the economy was still struggling under severe recessionary conditions."

A more open passage of communication is essential for these changes to be put into place for businesses, and the Forum is seeking a clearer definition as to what can be expected from banks. As part of a further probe into banking standards, they are also lobbying for a distinct 'lending code' to further clarify the situation.

One idea is to set a specific series of Service Level Agreements which would introduce an independent appeals system for businesses who believe they are not being treated in a fair manner. This would also enable stricter security checks to be made and protect against fraud.

The organisation has also approached the Office of Fair Trading (OFT) to open lines of conversation on the levels of financial services available. Alternatives to the 'old school' financial institutions are being called for, with added bonuses to make these ideas proceed swiftly.

Working with Funding Circle, an innovative online marketplace which provides low-cost finance by allowing investors to lend directly to small businesses, they aim to build a new financial landscape. Since August, small businesses across the UK have borrowed £500,000 from the service.

target="_blank"Funding Circle's co-founder James Meekings told the Forum:"While banks remain insistent that they are lending, our small business borrowers feel that opaque decision making, coupled with high fees and charges for loans and overdrafts, are stifling their chances of weathering the economic storm.

"New solutions are required through new competition and one of the best solutions is to circumvent banks entirely by using internet technology to match savers looking for better interest rates directly with creditworthy businesses, which is where we fit in."


IMAGE Gareth Fuller/PA Wire

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