Earlier this year, the Treasury committee launched an inquiry into SME finance looking at a number of issues.
This included competition in the market, the types of funding available to small businesses (both debt and equity) and whether the current regulatory framework provides SMEs with enough protection when it comes to borrowing.
On 23rd May, we were invited into parliament to provide oral evidence to the committee. Here is a summary of our views.
Brexit creates an opportunity to reform regulation and create more proportionality between challenger banks and incumbents
Currently, the European Banking Authority mandates that national regulators in EU member states must impose the Basel standards in full on all banks, regardless of size or whether they pose a systemic risk or not. This means that new banks like us have to adhere to more onerous capital requirements and hold up to 10 times more capital than larger banks to write the same loan. We have to use a standardised approach to our risk weighting, compared to the internal risk-based model that larger banks get to use. By being able to apply our own model regarding risk weighting instead of having to use the standardised approach, we would have a larger amount of capital at our disposal which would ultimately mean more money that we can lend. This would be good news for SME lending competition and good news for borrowers.
Greater support is needed to inform scale-up businesses of the options available to them when it comes to borrowing
The British Business Bank has done excellent work to help address this and support SMEs with high-growth potential through schemes such as Help to Grow and the ENABLE Guarantee programme. However, there is still a lack of awareness with only 37% stating that they have a full understanding of bank loans. Furthermore, confidence among SMEs planning to apply for bank finance has declined, falling from an abysmal 55% in Q4 2016 to 43% in Q4 2017. This lack of confidence stems from the fact that many businesses which would like to borrow from a bank, don’t end up applying as they either feel they would be turned down, or feel the bank is reluctant to lend.
SMEs need to be able to compare lenders against several factors, not just price
Following its retail banking investigation which concluded in 2016, the Competition and Markets Authority recommended that a price comparison website be created to help SMEs compare different providers when it comes to loans of up to £50,000. While we agree that a comparison website would be helpful for increasing SMEs’ awareness of other providers and enabling them to find the best lender for their needs, we disagree that it should focus on price, or that it should be limited to loans of up to £50,000. A comparison website should enable SMEs to compare a multitude of factors including price, such as speed of response, customer service, average transaction times, whether the bank offers term and revolving credit facilities, and what collateral the lender is willing to consider as security (real estate, stock, debtors, plant and machinery, alternative assets, intellectual property etc).
SIGN UP TO OUR NEWSLETTER TO RECEIVE MORE NEWS LIKE THIS STORY
Tandem secures £15m investment for Hong Kong expansion
Tandem has secured £15m of funding from Hong Kong-based financial services group Convoy Global Holdings...
BBB appoints network director for devolved nations
The British Business Bank (BBB) has appointed Jennifer Donnellan to the new position of UK network director for devolved nations...
CYBG reports 5.6% SME lending rise
CYBG PLC has announced in its preliminary results that it has provided £7.2bn in SME lending during the year ended 30th September 2018...
Xero announces five fintech integrations
Xero has announced five major fintech integrations with Tide, Starling, TransferWise, Revolut and Soldo...
OakNorth plans to lend £3bn to UK SMEs in 2019
OakNorth has revealed that it plans to lend a further £3bn to UK SMEs in 2019...
Paragon BTL lending pipeline up 28.9%
Paragon Banking Group PLC has reported a 28.9% increase in its BTL lending pipeline for the year ended 30th September 2018...
George Osborne optimistic that Open Banking will be ‘dramatic’ to industry
George Osborne has claimed that the big banks won’t necessarily look to move more quickly towards Open Banking as it represented a competitive threat to them...
Santander launches 'invisible cinema' experience to help tackle fraud
Santander has launched an ‘invisible cinema’ experience to teach under-25s about the importance of keeping financial information safe...
New CEO joins Buckinghamshire Building Society
Gerard O’Keeffe (pictured above) has started his role as the new CEO at Buckinghamshire Building Society...
STB Commercial Finance expands North West team
Secure Trust Bank (STB) Commercial Finance has appointed John Copping (pictured above) as regional sales director for the North West...
300 companies sign up to Women in Finance Charter
A total of 300 companies have now signed up to HM Treasury’s Women in Finance Charter....