The Chancellor’s Autumn Statement, which was officially announced today, covered stamp duty reform, an extra £2bn in funding for the NHS and, crucially for the alternative finance sector, £900m in extra funding for lending schemes that fund small businesses.
The British Business Bank (BBB) was established in 2013 to help small businesses find alternative funding when banks wouldn’t give them sufficient credit. An extra £400m will be given to the Business Bank’s venture capital programme, and £500m will be allocated to various lending schemes.
The more recent BBB lends to small businesses, in part, through peer-to-peer lending. The BBB’s aim is to give small businesses greater choice in lending and finance, and is funded by lenders who put money into the scheme in a variety of ways, such as equity, asset backed lenders and non-bank channels, which includes P2P, where businesses are matched to investors and lent to.
In addition to this, “the chancellor is expected to announce a one-year extension to the Funding for Lending Scheme (FLS)”, which has been allowing banks to “borrow cheaply from the Bank of England in return for lending to specific groups” since July 2012. BoE governor Mark Carney has previously commented that “the FLS has supported access to credit across the economy during an exceptional period. As the banking system has been returned to health”. Although, the Government’s willingness to help boost British SMEs has been provoked in part by the fact that lending to UK businesses fell this year according to the BoE’s figures, despite the economy’s growth, and also in response to Labour recently referring to themselves as “the party of small business.”
The FLS has received criticism, with the director-general of the British Chambers of Commerce, claiming that it “continued to disappoint”. The FLS was also called a “white elephant” in The Guardian after the first three months of data was released during its first year.
Despite this, many are in no doubt that this extra boost is necessary for SMEs in Britain, as 78% of businesses do not seek extra finance, according to figures from the SME Finance Monitor, with many concerned about rejection they view as inevitable. Osborne’s announcement has certainly come at the right time, as a survey conducted by Simply Business in November, revealed that over half of small businesses in the UK “feel that the Government simply doesn’t understand their needs”. Despite policy changes, many small business owners have been left unsatisfied, and one of the main issues highlighted by those surveyed was the fact that “the Government is designing policies according to what it believes small businesses need, but…support is passing them by” as the majority of small businesses in Britain are actually “sole and micro businesses”. It remains to be seen if this policy development will go on to help these businesses, but the alternative finance, lending and P2P sectors are visibly flourishing and becoming a more viable option for many seeking business finance.