Banks must play greater role in referring SMEs to alternative finance » SMEInsider

Banks must play greater role in referring SMEs to alternative finance

The head of the British Business Bank has told the BIS select committee has admitted there are problems helping small businesses access finance as an alternative to bank lending. Speaking this afternoon, Keith Morgan, CEO of the BBB, told MPs he wanted more work to be done to bridge the gap between traditional and alternative finance – and the high street banks have a major role to play.

Asked to comment on what’s working in this area, Morgan told the committee that understanding the problem is key. “We find that 90% of SMEs go to the current account provider, which translates into a 80 market share,” he said. “But if they don’t get what they need from the bank, half of them take no further action. That’s a lost opportunity…”

“The big area where we want to see more impact is awareness, and we want to help SMEs get a better handle on the options open to them. We worked with the ICAEW and others to do this. There used to be 23 different voices – the CBI, FSB and so on-  and we’ve brought them together produced a finance guide that has been well received,” said Morgan, who told the committee that 1m copies have been distributed so far. “We’ve discussed with the BBA that the guide would be available and handed out at the point of ‘no’ from a bank.”

Feedback from partners in the guide has been positive so far, Morgan said, who added that nine banks now must offer SMEs the option of a referral. The BBB designates three platforms as the main alternative finance providers. That system is now scaling up, and the business finance guide should work within that.


Crowdfunding regulation must be ‘proportionate’

At the same session, FCA Executive Director of Strategy and Competition Christopher Woolard told the committee that the regulator is working hard to ensure that regulation of equity crowdfunding and P2P lending was proportionate.

“It’s an industry that has campaigned to be regulated, as they see having a regulation provides confidence to investors and possible borrowers going forward,” Woolard said.

Asked what areas of concern around crowdfunding, Woolard said, “It’s a potential source of new competition and we wanted to make sure we had a proportionate regime that allows competition and confidence. The volume is close to 7% of total business loans, so larger SMEs are clearly using it.”

Looking back after 2 years of regulation, Woolard said the FCA would be taking further consultation on how to apply appropriate levels of regulation.

Committee chair Iain Wright asked Business Minister Anna Soubry if she thought there a problem with access to finance , and whether the regulatory regime had achieved the right balance.

“I get the feeling we’ve got the balance right,” she said. Asked about whether alternative finance was adequately regulated, Soubry said, “You have to keep your eye on it so it’s properly regulated. The biggest problem in my view is awareness. I know people who have never heard of crowdfunding and there is a level of ignorance in the real world, beyond London, and we have work to do to improve the understanding of alternative finance.”