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FSB calls for greater use of asset-based finance in SME lending

This week has witnessed the clearest endorsement to date of asset-based finance and alternative SME finance in general. The Federation of Small Businesses (FSB) has called on the government to promote, among other SME lending formats, greater use of asset-based finance.

The FSB has argued that the government should make asset-based finance a part of its Business Finance Partnership initiative, as well as backing other alternative SME lending facilities such as peer-to-peer lenders and microfinance bodies. The federation argues that this elevated role is necessary given the growing doubts over whether the current banking structure can ever again provide the SME credit services that small businesses require.

The alternative SME lending sector has been growing steadily in recent years, with the likes of asset-based finance, invoice discounting and factoring becoming increasingly popular thanks to their accessibility and flexibility and, over the last six months, calls have grown for it to take on a much more central role in the provision of small business lending.

The federation’s latest figures on small business use of bank overdrafts, secured loans and unsecured loans underlines the growing disenchantment with bank SME lending policy, a level of discontent that the banks’ failure to meet Project Merlin SME finance targets has laid bare. Having surveyed 11,000 members, the FSB has reported a significant drop in the use of bank overdrafts, secured loans and unsecured loans between 2009 and 2011.

Whether the federation’s calls have any influence on the Chancellor’s national SME loan guarantee scheme remains to be seen, particularly as he is due to announce details of his plans in just a couple of weeks, days before the 2012 Budget. However, in the mid-term, they may have an impact, in particular as doubts grow over the viability of the national loan guarantee scheme.

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