Government should encourage SME lending, says thinktank

The government should do more to encourage lending to small businesses, and building societies should be allowed to buy TSB bank, according to a leading thinktank.

In a report published on Monday, ResPublica suggests a number of measures the government could implement that would bring about greater competition by banks’ corporate finance arms.

Recommendations include allowing building societies, which currently account for a quarter of the personal finance and mortgage market share, to be permitted to buy out TSB bank. Building societies are currently almost completely absent from the corporate lending markets.

Current legislation dictates that 75% of building societies’ loan sheets must comprise of securities against residential property.

Cathy Jamieson, shadow chief financial secretary to the Treasury, said small businesses have struggled to secure finance since the economic crash in 2008.

“Given the good lending records of alternative, more inclusive forms of financial services, including building societies and mutual societies, the government should be doing all it can to support the growth of these financial institutions to ensure we create a financial system that supports our small businesses and truly serves the needs of our citizens and communities”, she said.

In November, a dossier of evidence gathered by the Department for Business, Innovation and Skills entrepreneur-in-residence Lawrence Tomlinson highlighted bad practices amongst banks, especially the Royal Bank of Scotland’s (RBS) administration division, the Global Restructuring Group (GRG).

Tomlinson said the large banks monopolised the market, and as such, there was no incentive for them to “sharpen their pencils’ and help customers out.

Commenting on this latest report into small business lending, director of ResPublica Phillip Blond said, “We are finally in a period of growth, but we lack the root system to keep this growth sustainable.

“Until we get a proper structure for the funding of small business, we cannot secure Britain’s long-term prosperity. This superb report tells us that we already have the SME support system we need – building societies. These, if freed from regulatory constraint, can and should lend to our small businesses. The solution is here; let us hope the government reaches for it.”

Further reading:

Peer-to-peer lending doubles in size to £843m in 2013

BankToTheFuture confirms talks with UK financial regulator 

Treasury looks to extend ISA reach to peer-to-peer finance and crowdfunding 

Miliband promises ‘new culture of long-termism’ in banking sector

Alternative finance grows 91% to raise nearly £1bn in 2013