The Treasury Committee has launched a new inquiry into the problems small and medium-sized enterprises (SMEs) face in accessing financing.
Over the next couple of months the cross-party group of MPs will explore issues in the industry and how regulation and government can respond.
Harriett Baldwin, chair of the Committee said: “Small businesses are the lifeblood of local communities, powering economic growth and fostering innovation and an entrepreneurial spirit.
“As a Committee, we’ll be examining whether small businesses are able to access the finance they need to grow and develop, whether there is adequate regulation of the sector, and if Government can take a more active role to support business growth,” she continued.
The Committee will investigate the key challenges facing SMEs when seeking funding, particularly exploring the role of credit agencies and the importance of innovation in the sector.
On regulation, the committee will explore whether commercial lending to SMEs should be more tightly regulated. It will also assess the impact of proposals to remove the SME support factor, which incentivises SME lending.
Finally it will ask whether the government could do more to improve SME access to finance.
A range of firms focused specifically on SMEs have emerged in recent years, reflecting the perceived failure of the high street lenders to cater to the sector.
Ravi Anand, managing director of SME lender ThinCats told City AM: “A key issue is that mainstream banks often let their customers down through a lack of expertise, especially where no asset security is available, yet they benefit from the most efficient funding models.”
Chief executive of Cashplus Rich Wagner agreed. “In the SME market, many larger banks fail to offer even basic services like current accounts, let alone lend to new businesses,” he said.
He argued that fintech and innovation could make a big difference in addressing this issue.
SME lending has been a hot topic in recent months as rising interest rates pours pressure onto a sector already struggling with the impact of inflation.
Anna Roughley, head of insight at the Lending Standards Board, said SMEs have had a “relentlessly difficult few years.”
“As the pandemic that barred many from trading petered out, business owners were walloped with rapid inflation and a subsequent rise in interest rates,” she continued.
Many suggest that mooted regulatory changes will only make things worse. Under proposals from the Prudential Regulation Authority (PRA) as part of the implementation of Basel 3.1, the SME support factor will be removed. SME lender Allica Bank warns this could cut SME lending by £44bn.
At the same time, data suggests traditional lenders are increasingly wary of lending to small businesses.