Britain's biggest banks are to be forced to increase competition in the SME loans market in a bid to ensure further growth in a key part of the economy.
Under new legislation being drawn up by the Treasury, banks will be instructed to help small and medium sized companies find new sources of finance if they have turned them down for loans.
George Osborne, the Chancellor, is today expected to outline the new rules, ahead of legislation due to be introduced in the Autumn.
The announcement comes just three weeks after the Competitions and Markets Authority recommended a full inquiry into the main high street banks after it found a lack of “effective competition” in both SME lending and current account services.
The CMA’s study found that 80pc of small business lending flows from the big four banks - Lloyds Banking Group, the Royal Bank of Scotland, HSBC and Barclays.
The SME sector is seen as being vital to continued UK economic growth as it employs some 24.3m people - almost half the country’s population - across 4.9m businesses.
Under the new rules, banks who reject SMEs for finance will be required to ask these firms whether they want their details to be shared with websites, who will then refer companies to challenger banks and alternative lenders.
The announcement follows an industry consultation, which began in April, asking banks and other finance providers their views on how the SME loans sector currerntly operates.
It will coincide with a financial technology conference in London today, at which Mr Osborne will outline a series of measures designed to make the UK the heart of innovation in the financial services world.
The measures will include: - a detailed look at the UK’s digital infrastructure to assess whether it meets business needs; - a £100m extension of the British Business Bank’s investment programme; - and a push from UKTI to promote UK companies in the financial technology sector overseas.
In addition, the Chancellor will support a new review examining the how technology serves the banking sector, for the first time looking at the risks and opportunities raised by using bitcoin and other virtual currencies.
A strategy report, to be published in the Autumn, is expected to scope out the potential for bitcoin’s use in the UK financial services market.
Vince Cable, Business Secretary, a long term advocate of increased SME lending, last night welcomed the move: “Forcing banks to refer businesses to alternative lenders is something I’ve been determined to make happen. “Big banks still dominate and small businesses often give up if they’re turned down for finance by their bank.
Meanwhile the banking lobby appeared sanguine about the move, with Irene Graham, exeucitve director of the BBA, saying: “The banking industry fully supports efforts to help match businesses rejected for finance with other lenders. In fact many of the banks already run programmes that refer businesses unsuited to bank finance to a range of alternative providers.
“We are also keen that any new process should give customers as many options as possible so that they can get the right finance for their business. It is equally important that the customer’s consent and choice is kept at the centre of any future scheme.”
Despite the Government's efforts, recent research has shown that only a third of Britain’s small businesses have turned to their banks for financing in the past quarter, the lowest level on record.
The latest SME Finance Monitor, published in May, found that 33pc of small firms reported using external finance, such as bank loans and overdrafts.
However almost half - some 48pc of those surveyed - classed themselves as “permanent non-borrowers”, shunning all external finance options, up from 30pc in 2012.
Commenting on the Chancellor's expected announcement, Samir Desai, chief executive of peer-to-peer business lender Funding Circle, said he applauded the Government's commitment.
"Non-bank lending to small businesses has exploded over the last four years and is expected to account for £12bn per year over the course of the next decade," he said.
"In June we announced a formal referral partnership with Santander, who will refer small business customers to Funding Circle where we are better placed to help. This acts as a blueprint for how banks and non-bank lenders can work together in the best interests of small business owners."
telegraph.co.uk
Under new legislation being drawn up by the Treasury, banks will be instructed to help small and medium sized companies find new sources of finance if they have turned them down for loans.
George Osborne, the Chancellor, is today expected to outline the new rules, ahead of legislation due to be introduced in the Autumn.
The announcement comes just three weeks after the Competitions and Markets Authority recommended a full inquiry into the main high street banks after it found a lack of “effective competition” in both SME lending and current account services.
The CMA’s study found that 80pc of small business lending flows from the big four banks - Lloyds Banking Group, the Royal Bank of Scotland, HSBC and Barclays.
The SME sector is seen as being vital to continued UK economic growth as it employs some 24.3m people - almost half the country’s population - across 4.9m businesses.
Under the new rules, banks who reject SMEs for finance will be required to ask these firms whether they want their details to be shared with websites, who will then refer companies to challenger banks and alternative lenders.
The announcement follows an industry consultation, which began in April, asking banks and other finance providers their views on how the SME loans sector currerntly operates.
It will coincide with a financial technology conference in London today, at which Mr Osborne will outline a series of measures designed to make the UK the heart of innovation in the financial services world.
The measures will include: - a detailed look at the UK’s digital infrastructure to assess whether it meets business needs; - a £100m extension of the British Business Bank’s investment programme; - and a push from UKTI to promote UK companies in the financial technology sector overseas.
In addition, the Chancellor will support a new review examining the how technology serves the banking sector, for the first time looking at the risks and opportunities raised by using bitcoin and other virtual currencies.
A strategy report, to be published in the Autumn, is expected to scope out the potential for bitcoin’s use in the UK financial services market.
Vince Cable, Business Secretary, a long term advocate of increased SME lending, last night welcomed the move: “Forcing banks to refer businesses to alternative lenders is something I’ve been determined to make happen. “Big banks still dominate and small businesses often give up if they’re turned down for finance by their bank.
Meanwhile the banking lobby appeared sanguine about the move, with Irene Graham, exeucitve director of the BBA, saying: “The banking industry fully supports efforts to help match businesses rejected for finance with other lenders. In fact many of the banks already run programmes that refer businesses unsuited to bank finance to a range of alternative providers.
“We are also keen that any new process should give customers as many options as possible so that they can get the right finance for their business. It is equally important that the customer’s consent and choice is kept at the centre of any future scheme.”
Despite the Government's efforts, recent research has shown that only a third of Britain’s small businesses have turned to their banks for financing in the past quarter, the lowest level on record.
The latest SME Finance Monitor, published in May, found that 33pc of small firms reported using external finance, such as bank loans and overdrafts.
However almost half - some 48pc of those surveyed - classed themselves as “permanent non-borrowers”, shunning all external finance options, up from 30pc in 2012.
Commenting on the Chancellor's expected announcement, Samir Desai, chief executive of peer-to-peer business lender Funding Circle, said he applauded the Government's commitment.
"Non-bank lending to small businesses has exploded over the last four years and is expected to account for £12bn per year over the course of the next decade," he said.
"In June we announced a formal referral partnership with Santander, who will refer small business customers to Funding Circle where we are better placed to help. This acts as a blueprint for how banks and non-bank lenders can work together in the best interests of small business owners."
telegraph.co.uk
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