New Entrants To Banking Market Could Help SMEs

New entrants to the banking market could help to plug the SME funding gap, according to data released this week by the Bank of England, which shows that there is demand for finance from them but that only a few newer banking entrants are fulfilling it.

New banks are passing on funds via the Bank’s Funding for Lending Scheme (FLS), whereas many of the big banks are not.

The FLS was launched in August last year and it is designed to lend banks and other lenders very cheap money as long as they pass the cheaper rates on to borrowers.

Figures out yesterday show that the scheme is starting to work, particularly in the mortgage sector, and the Bank’s data shows that Aldermore is among the top five lenders to homeowners and business within the FLS.

In turn demand for funding from SMEs is outstripping supply and that many very creditworthy small firms are being unnecessarily turned down for loans by the bigger lenders, whereas they try to take a balanced view of the whole business instead of just looking at risk.

Government ministers are concerned that the big banks are not lending and believe that it is because they are trying to build up their reserves to meet new regulatory requirements instead of lending to good quality SMEs.

Meanwhile, a report by the Federation of Small Businesses also found that four in 10 small firms are being turned down for bank loans and described the credit squeeze as “becoming critical”.

As an accountant, Simon Rowe, specialises in corporate finance, business turnaround and insolvency.

Posted in News.