Comments from the Chancellor and the Business Secretary have indicated that the creation of an SME bank might not be far off. Much depends on the performance of the Funding for Lending scheme and new lending figures have underlined the role of services such as invoice discounting.
The idea of an SME bank, dedicated to helping fund new and growing businesses in the UK, has been a long-standing one, with the British Chambers of Commerce (BCC) a prominent champion of such an institution. Until recently, the government has kept its distance from such a move but comments from George Osborne and Vince Cable, indicating an interest in establishing a British Business Bank, suggest a change in stance.
The BCC has responded to these developments by issuing The Case for a British Business Bank, a proposal arguing that the new institution should be set up as a first port of call for small business lending and should complement and not cannibalise existing lenders. According to the organisation, the SME bank should target both companies that encounter difficulties accessing finance and dissatisfied bank customers.
Whether or not an SME bank ever opens its doors, physically or virtually, remains to be seen, but it seems fair to say that a decision won’t be taken until the impact of the Funding for Lending scheme can be properly gauged. The government will be keen for the SME lending plan to show positive results after its previous initiatives came up short.
Whatever small business finance developments lie in store, it is clear that alternative finance facilities such as invoice discounting and factoring are playing a key role in improving the flow of SME credit. Bank of England lending figures for July show that bank loans to private businesses contracted for the month, suggesting that SMEs remain wary of traditional lending services and that they are focused on alternative SME finance products.
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