The Forum of Private Business is lobbying banks to increase availability and cost of commercial lending after a report identified a ‘permanent gap’ in small business finance
The business body wants banks to up loans of between £100,000 and £500,000 – the amount it says is typically sought by businesses. It is concerned that a lack of affordable credit will see firms fail to benefit from an upturn in trading conditions the other side of the downturn.
Responding to the organisation’s quarterly Referendum survey entitled ‘Preparing for Growth’, 77 per cent of FPB members said credit terms had deteriorated over the last year, with some reporting that banks were now demanding personal guarantees. Sixty-five per cent said it has become harder to access finance for growth while 68 per cent reported that the cost of finance has increased. Just four per cent have seen access to working capital improve this year.
“Firms are likely to require finance from a greater range of sources over the next year,” said the FPB’s policy representative Matt Goodman. “Growth funding is certainly welcome but must be accompanied by more sustainable banking lending and public sector support – including a replacement for the Enterprise Finance Guarantee (EFG) – so that they are able to take full advantage of future opportunities.”
Last month the findings of the Rowland’s Growth Capital Review were published, highlighting a major shortfall in growth capital for businesses seeking between £2m – £10m. Government responded by announcing plans to introduce a new growth capital fund to plug the gap, alongside a £1 billion innovation fund for technology start-ups.
But Goodman says that although these announcements are welcome, their benefit alone is limited. “The steep cost of traditional bank lending remains a huge barrier for many viable yet struggling firms,” he said.
Asked how finance headaches could be eased, thirty-six per cent of small business owners surveyed by the FPB said they wanted to see a reduction in the cost of lending while 27 per cent called for greater flexibility.
More simplicity, less time commitments, and more high street competition were other popular suggestions.