BRITAIN’S small firms could increase spending by tens of billions of pounds if they fully take advantage of alternative finance options, the Confederation of British Industry (CBI) claimed in a report published today.
Such an increase would get the economy moving, boost hiring and help the UK get back on its feet, the group believes.
Small- and medium-sized enterprises (SMEs) have less access to bank lending since the credit crunch as banks are more careful about who they lend to, with SMEs considered a greater credit risk than larger firms.
In addition banks must put aside more capital against SME loans compared to those officially deemed safer like mortgages, again hitting lending.
“A thriving SME sector is critical for maximising the UK’s growth potential and access to finance is fundamental to enabling businesses to realise their growth ambitions,” said the CBI report.
“These firms could be worth an additional £20bn to the economy by 2020, but only if they can access the finance they need to grow.”
It believes increased use of asset-based lending like invoice financing, supply chain finance, trade finance, retail bonds and peer-to-peer lending could help ease the strain on SMEs.
The creation of a bond market in SME debt would also boost investment, it hopes.
And the business group also wants more firms to consider raising equity finance, for instance by selling shares in their companies to private equity groups or so-called angel investors.
The government backed the push to encourage SMEs to access funds from a range of alternative sources of credit.
“The government wants to see a shift in the market structure towards non-bank lending, and through the business bank is deploying £300m of the £1bn allocated to the initiative to invest alongside the private sector in new entrants and the growth of smaller lenders,” said business secretary Vince Cable.