So, we’ve seen the first SME finance move by a bank in relation to the Funding for Lending scheme. The reduction in interest rates for small businesses by RBS and NatWest is positive but it is arguably a drop in the ocean and it is clear that services such as invoice discounting remain essential.
RBS and NatWest have cut interest rates for small businesses, announcing that the move will generate significant savings for these companies. The banks have also said that arrangement fees will be abolished on another tranche of SME lending. The banks have heralded the offers as their ‘best ever’ terms, but while the steps are welcome, this rhetoric suggests that caution remains an overriding factor.
Small businesses will no doubt be looking for further easing of SME credit terms, both from RBS and NatWest and across the banking sector. However, the language used by the former suggests further activity will be limited, in the short term at least, and no other major banks have yet to follow suit.
Hence, there is little reason to suggest that the new small business lending map, comprising a mix of traditional bank SME finance and alternative SME lending, such as invoice discounting and factoring, will be redrawn. Indeed, the recent move by RBS and NatWest lends weight to the picture that both have an equally important role to play, working in tandem to help generate start-up funding and maintain cash flow for operating SMEs.
Interestingly, the Federation of Small Businesses has commented that it is vital that RBS and NatWest follow up the offer with a robust service for small businesses to ensure that they instil confidence. This is no easy task for banks, whose track record in recent years has made few friends in the small business sector.
However, with the likes of invoice finance growing sharply in popularity, perhaps it is the alternative finance sector that will ease the pressure on the banks and prove key to nurturing this much needed confidence.
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