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October 17, 2014

SMEs to get 'second chance' to access funding

SMEs to get 'second chance' to access fundingThe government is introducing new measures to support small businesses that have been turned down for bank loans. It is describing the move as a “second chance” for small businesses that need finance.

The draft legislation – the Small Business Enterprise and Employment Bill – has been published this week. It includes measures requiring banks turning down small firms for loans to offer them the option to have key information passed to government-designated platforms that will help match them with alternative lenders.

More than half of small businesses seeking finance for the first time get rejected, and research suggests most of them do not try again.

And this week, a survey conducted by accountancy firm EY found that half of those polled said that access to finance is the greatest barrier to setting up a new business.

The high street banks currently account for the vast majority of SME banking relationships (over 80%), but innovative new forms of credit, such as peer-to-peer lending and crowd-funding platforms, are emerging as alternative sources of finance.

Andrea Leadsom, economic secretary to the Treasury, said: “A key part of our long term economic plan is to ensure that small businesses are able to access the finance they need to grow and succeed. The best way to deliver this is to increase competition in the sector and remove the barriers to new sources of finance for SMEs.”

This legislation, said Leasom, “will help ensure businesses that want to borrow, and lenders that are ready to lend, can easily find one another.”

SMEs in the UK account for more than half of private sector employment and nearly half of all private sector turnover. The Small Business Bill is intended to support small businesses and remove barriers to growth. It is expected to come into force in early 2015.

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