10/08/09

By Claire West

Business owners nowhere to turn if refused credit by high street banks.

The Federation of Small Businesses (FSB) is challenging a potential monopoly of power being built up by high street banks over small firms seeking finance, two years after the credit crunch started.

The FSB is warning that bank mergers, recapitalisation and schemes targeted at the big banks to stimulate lending as a result of the banking crisis risk stifling choices of finance for small firms – leaving business owners with nowhere to turn if they are refused credit by the major high street lenders.

With a quarter of small firms still struggling to access affordable finance, the FSB believes the power of the financial sector should be challenged to guarantee a fair service for small firms. The FSB proposes:

– Struggling banks should not be sold off to other high street lenders as this would create massive institutions which could stifle competition in the financial sector;

– Alternative sources of finance should be provided locally.

Regional Development Agencies should be restructured to offer loans and Essex County Council’s Bank of Essex model should be replicated around the UK. The Enterprise Finance Guarantee and funds already allocated from the European Investment Bank could also be offered via these routes.

– The Post Office should be turned into Post Bank offering support for small firms by utilising the Post Office Network and operating either as a solely state owned bank or as mutual or trustee bank.

– Financial Intermediaries, recently created by the Government, should be actively promoted to viable small businesses unable to access finance.

John Wright, Federation of Small Businesses, National Chairman, said:

“As the second anniversary of the credit crunch approaches, it is important to consider the impact of the banking crisis and what it means for future relationships with small businesses to avoid getting into a similar situation.

“Despite Government bailouts and interest rates set at a record low, small firms are still finding it tough to access affordable loans and overdrafts from banks. This is compounded by the fact that much of the support provided by the Government is only available through the banks and often this isn’t replicated at branch level. The FSB would like to see more alternative sources of finance provided locally such as through Regional Development Agencies, local councils or post offices. This would increase the choice of finance on offer to business owners, thereby enhancing their prospects of survival and helping them play their part in stimulating the economy and getting the UK out of recession and onto a steady recovery.”

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