The government has today published draft legislation introducing new measures to support smaller businesses get the finance they need to grow, including by helping them seek out alternative lenders if the big banks turn them down for loans.
The legislation, which is being introduced through the Small Business Enterprise and Employment Bill, will introduce measures to help smaller businesses by requiring banks that turn them down for loans to offer these businesses the option to have their key information passed to government designated platforms that will help match them with alternative lenders.
Over half of SMEs seeking finance for the first time get rejected, and research suggests most of them do not try again.
Yet SMEs are vital to Britain’s economy, accounting for over half of private sector employment and nearly half of all private sector turnover. That is why the government is taking action, because the ability of SMEs to access finance is key for funding investment and ensuring these businesses can grow and create jobs.
Big banks currently account for the vast majority of main SME banking relationships (over 80%), but innovative new forms of credit, such as peer-to-peer lending and crowd-funding platforms, are being created in the UK all the time.
The new measures will help bridge the gap between SMEs not knowing other lending options could meet their needs, and alternative lenders not knowing these businesses need a loan.
The Economic Secretary to the Treasury Andrea Leadsom said:
A key part of our long term economic plan is to ensure that small businesses are able to access the finance they need to grow and succeed.
The best way to deliver this is to increase competition in the sector and remove the barriers to new sources of finance for SMEs.
That is why the legislation we’re introducing today is so important, as it will help ensure businesses that want to borrow, and lenders that are ready to lend, can easily find one another.
The government consulted on these proposals in March 2014. A summary of responses was published in August, which confirmed the government received widespread support for the proposals and would proceed with legislative action.
The Small Business Enterprise and Employment Bill is expected to come into force in early 2015.
The UK is a great place to set up a business and more people than ever are beginning new enterprises. The government is backing business every step of the way and introducing legislation to help make the UK the most attractive place to start, finance and grow a business. The Small Business, Enterprise and Employment Bill will help to build a stronger and fairer economy by supporting small businesses as they compete, and ensure they are not disadvantaged by those that do not play by the rules. It will foster and back the entrepreneurial spirit and build on the UK’s reputation as a fair and trusted place to do business. The Bill sets out measures to help hard working people have confidence in their employers and reduce the barriers that can hold businesses back from growth.