UK banks ask for more support to lend to small businesses

Banks would appreciate further support from UK government for lending to small businesses.

Lending to small businesses by high street banks in the UK could do with being helped along by government backing, according to Keith Morgan, head of the British Business Bank (BBB).

The chief executive officer of the BBB pointed out that net bank lending declined in 2014 and that alternative sources of finance have not yet grown large enough to fill the gap.

“Bank lending is still very important to small businesses. We have seen encouraging signs of growth from alternative lenders [but] they still represent something very small,” Mr Morgan said in an interview with the Financial Times.

Expand UK’s funding schemes

Government schemes such as Funding for Lending could be expanded and supported to combat the growing cost of finance, which is one of the leading barriers to growth according to a survey from the Federation of Small Businesses.

In order to increase the access to funding for small businesses, the BBB will trial a program that allows banks to pay a fee to obtain a government-backed guarantee that would cover losses above an agreed minimum.

It’s a move that should allow banks to lend more without having to hold as much collateral of capital, which newer regulations have deemed necessary in the wake of the financial crisis. It seems that current schemes seem to only reduce the price of loans, but not their availability.

BBB look to double alternative funding

Another pathway to increase the availability of lending has been the impressive growth in the alternative funding landscape.

Around 25 per cent of funding for small and medium businesses comes from alternative sources such as peer-to-peer lending, bonds or asset-based finance. A percentage which the BBB hope to double during this year.

The lending environment has changed since the days of cheap loans and it seems that banks are still struggling to catch up. But the need for finance has seen revolutions in funding that will provide unique opportunities for businesses in the future.