Small firms need loans – and the Government listens?

Business banking news review: week ending 27 Sept 2012

It looks like the Government really does have the best interests of small firms in mind – if the news of £1 billion in Government funding true, that is.

This week, one of the biggest news stories was how a peer-to-peer lender has discovered that one out of every three small businesses in the UK would happily hire new staff if they could only access working capital from their local high street branch. The new survey, conducted by Funding Circle, comes just in time, as the Government recently announced that it’s had it with high street banks and building societies dragging their feet when it comes to handing out business loans – and that they’re going to take matters into their own hands by unveiling their own business lending solution.

There could be more than 500,000 jobs simply going unfilled because of financial service providers and their reticence to provide credit to the one third of small businesses surveyed that said they wish to grow but cannot afford to, the survey discovered. One out of every three employers would grow their staff by 12 per cent on average, if only they could gain access to credit, the survey said.

Right on the heels of Funding Circle’s research findings came news that the Government has had just about enough of this sort of churlish behaviour on the part of the UK’s banking institutions, announcing that it will be establishing a business bank with £1 billion in funding that will be made available to address the egregious structural gaps that have been plaguing finance in the years since the credit crunch. Details are still hazy, with more to come this December, but there are expectations that the initiative will throw its support behind Aldermore, Shawbrook, and other ‘challenger’ banks, or possibly strengthen finance secured through non-traditional bnking channels such as peer-to-peer lending.

There will be no retail presence for the bank, which will open its doors in 2013, but will instead deal directly with lenders by providing them access to wholesale funding. Business secretary Vince Cable has said that there is no plan to subsidise or displace any current banking institutions, and will aim in easing borrowing constraints for firms looking to grow instead of intervening directly.

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