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Cable’s industry strategy puts spotlight on alternative finance sector

The government is gearing up for another attempt to stimulate SME lending. Vince Cable’s new industry strategy, in particular the prospect of a British business bank, is making headlines. The move away from traditional lenders only underlines the role of services such as invoice finance.
Little more than a week after the Business Secretary indicated that a British business bank was on its radar, such an institution looks set to be a cornerstone of his new industry strategy for expanding small business lending.
Notably, the rhetoric surrounding the announcement suggests that SME finance will be the primary focus of this new programme and that the launch of a business bank would serve not solely to increase credit but to shake up the business finance market, which is as good as pointing the finger at the traditional banking sector. The comments have gone down well with the business sector, including the British Chambers of Commerce and the Confederation of British Industry.
Interestingly, Cable has suggested that the bank could be operated through alternative finance providers such as Handlesbanken and the Co-op. This focus on the alternative finance sector is telling, as much as it underlines frustration with traditional banks and the growing role of the much wider range of companies and small business finance facilities that fall under this banner.
Small business lending from traditional banks continues to be weak while the use of SME credit products such as invoice discounting, factoring and asset finance go from strength to strength. If the government is looking to embrace the alternative finance sector, it would do well to open its arms fully rather than just partially.
Third-party SME finance has been notably absent from previous state small business lending initiatives. As this sector continues to plug the gap left by banks in helping to provide start-up-funding and maintain cash flow for existing businesses, it’s time this changed.
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