After a few weeks of ifs and whens, Vince Cable has confirmed that Britain will get its own SME bank. Early indicators suggest that alternative finance will be at the heart of the new institution and that services such as invoice discounting and factoring will play a key role.
The announcement of a British business bank to be funded on a public-private basis that will be able to leverage up to £10 billion in SME loans has been broadly welcomed by the small business sector, with qualified support from the British Chambers of Commerce, the Confederation of British Industry and the TUC.
While it is far too soon for small businesses to sit back and breathe a sigh of relief, the focus on alternative finance as part of the SME loan system is encouraging. Some commentators have pointed out that previous SME lending schemes pledged much greater sums but failed to deliver, but plans to engage with innovative lending facilities, such as peer-to-peer lending, and bypass the traditional banks, suggest that this initiative will take a different path.
However, we will have to wait and see to what degree the SME bank embraces alternative finance facilities – details aren’t due until December, ahead of a launch that is expected within 18 months. SME lending products such as invoice finance and asset finance have boomed in the wake of cautious banking policies and it seems only wise that they should play some role in this new institution.
One shortcoming their inclusion may help avoid is too great a focus on companies at the larger end of the SME scale, which was the basis of much of the criticism levelled at Project Merlin and other small business lending initiatives. The rubber-stamping of a British business bank is a good thing but let’s not count our chickens before they hatch – if it is to work, the correct mechanics and the correct focus are essential.
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