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Banking sector needs more competition, say small firms


The message was sent in the Federation of Small
Businesses’ response to the consultation ‘Financing a privates sector recovery’.
A decade ago, the Cruickshank Report found that the four main UK banks held 83% of the banking market for small businesses. The FSB has told the coalition government that they must look at new ways to change behaviour in the credit market for small firms.
More than 40% of small businesses use a bank loan, overdraft, leasing or factoring for major credit purposes. But they are angry that their main source of finance are being penalised by high interest rates at a time when the base rate is at an all-time low.
The FSB is urging the government to:
  • Refrain from selling its shareholdings in nationalised and capitalised banks to other banks;


  • Promote Financial Intermediaries to viable small businesses unable to access finance;


  • Introduce a series of Regional Capital Markets and Community Investment Trusts;


  • Create a Post Bank by turning the Post Office into either a solely state-owned bank or as mutual or trustee bank for small firms by utilising the Post Office Network.
The FSB firmly believes that such radical moves will not only help small businesses in accessing credit for start-up needs and growth requirements but also will help provide stability in the event of future limitations of credit through the banks.
A FSB spokesman said: "During the recession the FSB has actively sought to promote lending to small businesses, be that through the banks or government-backed schemes such as the Enterprise Finance Guarantee. But firms are still facing an uphill struggle.
"Demand for finance is at its highest as the economy enters recovery – something which the UK economy is tentatively moving through. If the government truly believes that the private sector is going to help avoid a double-dip recession, it needs to consider alternative sources of finance.
"Small firms do not have a huge amount of scope in accessing finance, unlike larger businesses. More competition in the sector will mean greater competitiveness in terms of the cost and the services provided and give access to the type of finance which large businesses are able to tap into."