Credit easing must be bold, as a third of small firms are refused credit

The Government must come up with a credit easing solution that is bold, and works for small firms, the Federation of Small Businesses (FSB) has said.

The call comes as a recent survey from the FSB found that 34 per cent of respondents were refused credit when they had gone to the banks for finance.

In a bid to support small businesses, the FSB has released a paper titled ‘FSB credit easing viewpoint’, which will form part of its submission ahead of the Autumn Statement at the end of this month.

The chancellor has already revealed that some form of credit easing will be announced, but specific details remain under wraps. One method that the Treasury are reportedly looking into involves the direct purchase of corporate bonds in small and medium-sized businesses through the creation of a new market. But this will not help the smallest enterprises, the FSB claims.

The FSB is calling on the Government to be more creative, which could include scaling up existing Government lending schemes like the Enterprise Finance Guarantee. Whatever the solution is, it must, according to the FSB, boost competition, increase access to credit for the smallest businesses, and encourage community development.

Commenting, John Walker, national chairman of the FSB said:

“For credit easing to have any impact, it must be bold and look to boost competition by stimulating innovative models that are coming onto the market, such as peer-to-peer lending and smaller internet banks.
“Analysis of small businesses lending shows that it’s the smallest of firms that are getting the worse deal – they’re paying more and they’re more likely to be refused. For credit easing to work it needs to benefit the smallest of businesses as well as medium-sized ones. However, if it is run through the main high street banks, that already dominate the small business market, we fear that businesses will be put off applying for it and so wouldn’t have the impact needed to make a difference.

“If thought through properly, this scheme could be really useful. The FSB would like the Government to establish a scheme which is universal so that all businesses, whatever their size, sector or status can access it. It needs to be something that can be easily set up, for example, using existing Government schemes as its backbone and it must be at arm’s length from the banks.”