As the dust settles following a strongly business-focused 2012 Budget, attention has once again fallen on the role of alternative SME lending services, including asset leasing and invoice finance. Interestingly, the prospect of an SME bank is back in the headlines.
The possibility of an SME bank has been raised on a number of occasions over the last six months as a means of improving small business credit, but until recently, it has existed on the periphery of the debate. However, the idea has gained more traction since the 2012 Budget, arguably a reflection of the light shined on the state of SME finance and the realisation that, despite the government’s efforts, the mainstream small business lending sector won’t be providing all the answers.
The recent Budget and introduction of the National Loan Guarantee Scheme and the discussion around these measures and their viability has focused minds not only on the role of high-street banks in terms of SME lending but, crucially, the increasing role being played by the non-bank lending sector, which includes small business credit services such as invoice discounting, factoring and asset finance.
Interestingly, more attention is being paid to the role an SME bank could play, a suggestion that is drawing more and more comment. Instead of being left on the sidelines, this topic is receiving broader coverage. The Federation of Small Businesses has recently pointed out that five dominant lenders account for 90% of lending to SMEs in the UK, while in the US, there are 15,000 finance institutions competing to lend to companies. The association has also contrasted the make-up of the banking system in the UK to the more competitive structure of those in Germany and Japan.
Will an SME bank work in the UK? That’s a tough call, but what is more important is that the growing debate around this topic signals an important shift in the psyche of the country, in that the alternative SME lending sector is no longer merely an ancillary industry but an increasingly central one.
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