The Leasing Foundation, in collaboration with finance provider Syscap, has today responded to the HM Treasury/Department for Business Innovation and Skills consultation on legislative action to help match SMEs that have been rejected for loans by banks with alternative finance providers that could offer finance.
The consultation sets out the government’s preferred approach of “requiring banks to refer details of SMEs that have been rejected for loans to a platform or platforms so that they can be accessed by challenger banks and other providers of finance.”
The Leasing Foundation, in collaboration with Syscap, have responded that such a process would enable lenders to connect more effectively with SMEs who need finance to fuel growth.
The text of the response is available at https://leasingfoundation.org/8r2j
Professor Peter Thomas, Foundation COO, says “Financing of the SME economy has been largely in the hands of commercial banks who provide over 90% of SME financing. At the same time as lending to SMEs declining, banks have been reluctant to refer SMEs to other sources of finance. As our own research shows, SMEs rejected for finance are often unaware of what other sources of finance are available to them.”
The ‘non-bank financing’ sector – which includes lenders who offer forms of finance including factoring, invoice discounting, supply chain finance, asset finance (such as hire purchase, operating leases and finance leases) – accounts for a growing, but still small and largely unnoticed, proportion of SME financing. These forms of finance have a demonstrated track record of being flexible and accessible solutions for SMEs.
A more diversified, less-bank reliant financing landscape would be an advantage to SMEs as these forms of finance are well-collateralised and so represent a much less risky form of financing and one that is available to a wider range of companies, especially at the smaller end of the SME spectrum which have been disproportionately impacted by the shortage of finance.
Derek Soper, Foundation Chairman, notes “Our ongoing research shows in reality that the pervasive problem is lack of awareness amongst SMEs. Companies at the smaller end of the SME spectrum have even less ability to seek out forms of finance when they have been rejected for finance by their bank.”
The government’s preferred approach to sharing information is through designated private sector platforms. Lenders would access the information and consider whether they could offer the SME a loan.
Philip White, CEO of Syscap, notes “In order to create a vibrant and competitive market to stimulate growing UK SMEs, a variety of customer–centred financial platforms need to be encouraged and made accessible to SME borrowers to support their short and long term requirements. By creating a strong secondary market to support SMEs, alternative finance providers will be better able to take advantage of new technologies without an over-reliance on traditional private sector referral arrangements.”