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BIS adviser report makes it clear alternative finance is vital

The SME sector has long protested about the attitude of banks to small business lending, but the latest criticism has come from the Department for Business, Innovation and Skills (BIS) itself. Its message underlines the vital role of alternative business finance services.

BIS entrepreneur-in-residence Lawrence Tomlinson, whose job it is to advise Business Secretary Vince Cable on the needs of SMEs, has issued a damning report on banks’ conduct in relation to SME lending. He pointed to astronomical fees putting businesses into financial distress and SMEs being deterred from accessing finance before even being given the chance to apply. He also labelled the claim that 90% of loan applications are accepted as extremely misleading.

The attitude of banks may be changing as schemes such as Funding for Lending and the Start Up Loans Company continue to provide means of more attractive small business lending, but the dossier leaves little doubt as to why the alternative finance sector, led by invoice finance, has grown so markedly in recent years and why it is so important to businesses that continue to struggle to generate start-up funding and maintain cashflow.

Whether the picture is as bleak as Tomlinson paints it – notably, invoice finance and other alternative finance products are being used increasingly in tandem with traditional bank SME services – it is clear that banks have a long way to go to regain the trust of the SME sector, in particular small businesses.

The SME finance landscape has changed and, as recent bank interest in alternative finance proves, services such as invoice finance and peer-to-peer lending have a key role to play in the revitalisation of the UK business sector.

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