Restricted access to alternative finance options among small businesses is restricting UK economic growth, according to a new FSB report.
‘Going for Growth’ shows that only one in seven (13%) small firms are currently applying for external finance, with more than two thirds (68%) being offered lending rates above 4%.
The FSB report highlights the benefits of Open Banking, which allows business owners to grant third parties real-time access to their banking data, is key to enabling greater access to alternative finance options.
FSB is calling on the Government to work in partnership with industry to embark on an Open Banking awareness-raising campaign targeted at small businesses, promoting its potential and allaying security concerns associated with it.
The new report also flags the shortcomings of the Government’s Bank Referral Scheme, which directs small firms that have been denied bank finance to alternative funding matchmakers. Since the launch of the scheme in 2016, only 902 (4.7%) of the 19,000 firms that have been referred through the initiative have gone on to secure new finance.
FSB National Chairman Mike Cherry said: “Despite being a decade on from the crash we still have this dangerous combination of weak appetite for, and low awareness of, alternative finance options, high borrowing costs and inadequate support for small firms that are turned down by banks. Too many small business owners approach the big lender they’ve always dealt with as a first port of call when asset, peer-to-peer or equity finance could be a much better match for them.
“Efforts are being made – not least by the British Business Bank – to address these issues, but there’s still a huge amount of work to do. Open Banking holds massive potential. Having real-time access to accounts will make it easier for finance providers and investors to identify the right routes for clients and make decisions swiftly. We need to see the Government working with industry to promote Open Banking among small firms, while regulators need to ensure that lenders are meeting all of their Open Banking obligations.