Small businesses encouraged to seek alternative finance options

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A lack of available finance options is holding back business growth during a key period of transition for the economy, a new report has revealed.

The Federation of Small Businesses (FSB), which published the analysis, said “restricted access” to alternative finance options is “restricting UK economic growth” just weeks before the country is set to leave the EU.

The report, entitled Going for Growth, shows that just one in seven (13 per cent) of small firms are currently applying for external finance, with more than two thirds (68 per cent) being offered lending rates above four per cent.

The research also found discrepancies in lending options for people of different genders and races. Women business owners, in particular those from black and minority ethnic (BAME) backgrounds, based outside of London find it particularly “difficult to secure new funding”, the study revealed.

In fact, over four in 10 (43 per cent) of female business owners describe the accessibility of new credit as “poor”, compared to 38 per cent of male entrepreneurs.

It appears, then, that the overwhelming majority of business owners (around 70 per cent) rely on a bank loan or overdraft facility to finance the growth of their business.

This is an issue, says the FSB, since the UK’s four largest banks control 80 per cent of the commercial loan market, meaning competition within the small business banking sector is “chronically” low.

Commenting on the report’s findings, FSB National Chairman Mike Cherry, said: “Despite being a decade on from the crash, we still have this dangerous combination of weak appetite for, and low awareness of, alternative finance options, high borrowing costs and inadequate support for small firms that are turned down by banks.

“Too many small business owners approach the big lender they’ve always dealt with as a first port of call when asset, peer-to-peer or equity finance could be a much better match for them.”

The FSB has called on the Government to improve the outlook of firms referred through the Bank Referral Scheme. Currently, just 4.7 per cent of firms referred through the initiative have gone on to secure external finance, a figure the business body hopes can be increased by ensuring banks are “doing all they can” to make those they turn down more aware of alternative routes.

To read the report’s findings in full, please click here.

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