A question mark over financial viability has checked the momentum behind a British business bank. This, along with fresh criticism for the Funding for Lending scheme, has underlined the key role that alternative services such as invoice finance have to play in SME finance.
While the likelihood of an SME bank grows ever stronger, a new claim that the investment required to create such an institution would cause the Chancellor to miss fiscal targets has brought into question the time frame behind any such move and the degree of power that the bank would have. The Institute for Public Policy Research has raised concerns that the impact of an SME bank could be diluted by budget constraints.
In addition, the Bank of England’s Funding for Lending scheme has come under renewed fire from the SME sector, with the Forum for Private Business questioning whether the introduction of a British business bank would have any more effect on small business lending than previous SME finance initiatives. News that refusal rates for SME loans have reached almost 40% suggests that these programmes have gained little traction.
The doubts raised over the SME bank and the Funding for Lending scheme, and by association over the direction and impact of government efforts to improve small business bank lending, emphasise the vital role being played by alternative finance services such as invoice discounting, factoring and asset finance in generating start-up funding and maintaining cash flow at SMEs.
As questions continue to be asked of banks’ willingness to lend to small businesses, it is worth noting that invoice finance is often used in conjunction with traditional SME bank lending services. If it is the case that the banks need further impetus to improve small business lending facilities, perhaps the answer lies in greater government backing for third-party SME finance services like invoice discounting and factoring.
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