Question

To ask the Secretary of State for Business, Innovation and Skills, what steps he is taking to improve business access to (a) bank and (b) non-bank finance; and if he will make a statement.

The Government has taken bold and innovative steps to improve business access to bank and non-bank finance.

A key development has been the establishment of the British Business Bank (BBB) which became operationally independent in November 2014. For the first time, the UK has a permanent institution committed to correcting business finance market failures and driving innovation and competition in the markets. Similar institutions have long been a feature in the access to finance landscape in other countries.

The Bank has made significant progress not just in terms of its establishment but also by the amount of investment that it is already stimulating. Business Bank programmes are currently supporting £1.8bn of finance to over 43,000 smaller businesses, with a further £1.2bn of finance to mid-cap businesses. Over the next five years, it aims to unlock further significant bank and non-bank finance for viable smaller businesses through programmes such as the Enterprise Finance Guarantee, the Start Up Loan programme, the Investment Programme and venture capital programmes.

Government is also legislating to improve business access to finance. Provisions in the Small Business, Enterprise and Employment Bill will require major banks to refer declined small business borrowers to lending platforms. This will help put borrowers in touch with alternatives to their main bank and stimulate the growth of alternative providers. Banks will also be required to share credit data on their small and medium sized business customers with other finance providers via credit reference agencies to make it easier for alternative lenders to lend.

Government is taking steps to improve the information and advice available to potential borrowers through schemes such as ‘My Business Support Tool’. This helps businesses find the support appropriate for their size and situation quickly with businesses being able to speak to, or webchat, with a helpline adviser direct using the Business Support helpline.

Government is also improving competition and choice in finance markets. For example, authorisation processes for new banks have been streamlined, and the seven day Current Account Switching Service will be extended to businesses with a turnover of up to £6.5m from the beginning of April. The British Business Bank’s Investment Programme is co-investing up to £400 million into alternative finance providers, including challenger banks and non-bank lenders such as crowd funding platforms. In addition, the Competition and Market Authority is carrying out a market investigation of SME banking, with provisional findings and a possible remedies notice (if required) expected in September.

Government is using the tax system to support the development of alternative financing. Tax changes announced in last year’s Autumn Statement, for example, will support the development of peer to peer lending and crowdfunding platforms by allowing investors to offset losses from bad loans against other peer to peer income. In addition, the government is boosting the private placement market, which provides long-term funding for business from insurance companies and other non-bank sources, by making an exemption from withholding tax for interest on private placements.

The overall business finance environment is improving. Gross bank lending to small businesses in 2014 was 24% higher than in 2013 and, according to the latest SME Finance Monitor report, 76% of applications for loans and overdrafts made within the last 18 months were successful. Gross lending to all non-financial businesses, including large companies, in 2014 was 16% higher than in 2013. Research published by Nesta in November 2014 shows that the alternative finance market is also increasing rapidly. In 2014, the market raised £1.19 billion for businesses, more than double that raised in 2013.