Independent report advises alternative methods of SME finance

Proposals to increase access to capital and promote alternative sources of finance for small businesses have been published in an independent taskforce report.

The Boosting Finance Options for Businesses report, commissioned by the Government, examined a range of alternative and sustainable finance sources for small and medium sized enterprises (SMEs).

Bank finance is the largest source of external finance used by businesses; however, various recent reports have highlighted concerns that small businesses face continuing difficulties accessing capital in the wake of the recession, with some owners even turning to their own savings to fund business.

The taskforce, headed by the CEO of Legal and General Tim Breedon, modelled some of the recommendations on finance structures in place in countries such as the US and Germany.

The main recommendations, which are to be presented to business secretary Vince Cable, include:

  • An increased awareness of the alternative finance options available, to be delivered by a new single business support agency, similar to Germany's KfW.
  • The establishment of a Business Finance Advice network comprising of the main accountancy bodies.
  • To widen capital markets and make it easier for SMEs to access finance through a specialised body in securing loans.
  • A possible Government Business Finance Partnership to invest in peer to peer lending and encourage investment from larger businesses.

Welcoming the recommendations, national chairman for the Federation of Small Businesses (FSB) John Walker, said: "Putting the Government's financial products under one umbrella organisation and looking at a pilot SME bond scheme, as well as learning what works well in other countries is a good step forward and we urge the Government to take forward the recommendations as soon as possible."

According to the report, demand for finance is expected to increase as the economy recovers, but with banks reluctant to lend and further deleveraging, the finance gap could widen from £84 billion to £191 billion over the next five years.

It is hoped that the taskforces recommendations will reduce the gap by increasing the supply and take-up of alternative sources of capital.

The Government is to review the recommendations and is expected to make a response in the near future.