Proposals to widen business access to new and alternative sources of finance have been published by the independent taskforce on non-bank lending.
The taskforce, chaired by Tim Breedon, CEO of Legal & General plc, was commissioned by the Government to examine a range of alternative and sustainable finance sources, particularly for small and medium-sized enterprises (SMEs). Input in to the proposals was provided by Geraint Rowe of Gambit Corporate Finance LLP.
The main recommendations from the taskforce’s report to Business Secretary Vince Cable are:
The creation of an alternative point of contact to the banks for information about raising finance: a second port of call. Industry to establish a kitemarked Business Finance Advice network.
A single brand and delivery agency to increase awareness and enhance delivery of the government's range of SME finance programmes drawing on international examples such as Germany's KfW.
Opening up access to capital markets funding for smaller companies through the creation of a new aggregation agency to bundle SME loans.
An in-depth feasibility study led by AFME is the first step in this process. Programmes also to standardise and promote private placements, mezzanine and export finance, and encourage retail investment.
Stimulation of the retail investor base for public bonds;
Markets for innovative products including mezzanine finance and peer-to-peer lending to be considered for investment by the Government's Business Finance Partnership.
Reinforcement of prompt payment, led by companies in the Government's supply chain. Support for greater use of invoice discounting to fund payment gaps, including use of electronic trading platforms.
Encouragement for large businesses to utilise supply chain financing to invest in smaller suppliers.
Government and industry to review impact of international prudential regulation such as bank and insurance capital rules on the supply of SME finance.
Tim Breedon, chairman of the non-bank lending taskforce, said:
“There is compelling evidence that access to finance is expected to become more acute as business confidence and growth returns, whilst continuing bank deleveraging is likely to leave a significant funding shortfall.
“Whilst there is no silver bullet to addressing this issue, we have made a number of recommendations which I believe will collectively help open up alternative financing channels for UK SMEs.”
The report outlines that anticipated growth in demand for finance as the economy recovers, and the expected constraint on availability from banks and other sources, could create a finance gap for businesses of £84 billion to £191 billion over the next five years.
Bank lending is by far the largest source of external finance currently used by businesses, but the taskforce believes there is significant potential to develop both the demand and supply of non-bank lending to match the financial landscape of countries like Germany and the US.
The taskforce focussed on businesses that are currently unable to access public capital markets traditionally used mainly by large companies. It recommends a number of measures to help break down the barrier to greater development of alternative sources of finance. “
To view the review, click here