Coming so swiftly after the Royal Bank of Scotland’s banking debacle, news that Barclays has mis-sold financial products to small businesses reinforces the changing landscape of SME finance in the UK and the growing role being played by alternative SME finance, such as invoice finance.
Small businesses have long argued that they are being short-changed by the bank over terms for SME credit and the actions of RBS and Barclays over the past few weeks have only weakened confidence further, perhaps to a point where we will see a systematic change in the way businesses approach SME finance.
Commentators have long noted the growing presence of alternative finance products, such as invoice finance and asset finance, as much as they have underlined the attempts to stimulate SME lending from the major banks. We’ve witnessed Project Merlin, the Credit Easing programme and the latest £80 billion Funding for Lending initiative from the Bank of England.
It is early days for the most recent programme but the others have had little success. Will the events of the last couple of weeks prompt something more radical from the government? The British Chambers of Commerce (BCC) has called once again for the creation of a state controlled SME bank, but what seems more certain is that the reputation and presence of the likes of invoice discounting and factoring will grow further.
The BCC makes the point that trust is hard to earn and easily lost, and the banks now face a daunting task in regaining trust among SMEs. Before RBS’s updating fiasco and Barclays’ record fine and mea culpa, alternative finance products were filling the void left by cautious bank policies, now it seems that we are set to enter an era when reliable, flexible and transparent products such as invoice finance establish themselves as mainstream small business credit facilities.
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