Small businesses are finding it more and more difficult to secure the funding they need to expand from traditional lenders. This week the debate over where companies should turn in order to find new funding opportunities has taken a new turn.
The government were previously very critical about the fact that the big banks were not lending to small businesses. The government have repeatedly said how important small businesses are to the recovery of the economy and how troubled they are by the fact that banks are resistant to lending to them.
In a change of tactics the government have now said that they are encouraging people to get involved in peer-to-peer lending. This is where individuals can go online and offer money to be lent to a company. Often these businesses are particularly small and are looking for the start-up capital they need. Often they are other sorts of organisations such as social enterprises.
The banks in the UK are also facing an increasing amount of regulation and various proposals have been put forward in order to ensure that banks offer more to small businesses in the future. However, it is understandable that the banks are currently adverse to giving out loans to small businesses.
They are typically a higher risk choice and in these times of general economic decline, banks are not willing to take the risk that a business will fail, and they will not be able to get all of their investment back.
The banks have defended these actions saying that being risk averse allows them to offer products to their customers at a much more affordable rate. Various business lobby groups have acknowledged the statements by the bank however the government has said that it is very important that banks do continue to lend to small businesses.
The Bank of England has stated that in order to keep costs low for customers, they shouldn’t not invest in small companies, but they should focus on paying their board of directors smaller salaries and not giving them such significant bonus packages.