Member Article

SMEs must look to alternative finance, says CBI

Businesses with growth ambitions need to look to a wider range of finance options to enable expansion, according to business lobbyists, CBI.

The CBI urged SMEs to consider different options including asset-based lending, equity investment and peer-to-peer lending.

Research carried out by the group found an unharvested potential in medium-sized businesses who could generate £20bn for the UK economy by 2020 through high growth.

This news came alongside reports from GE Capital that showed a planned £51bn spend from SMEs over the next year, although many will need appropriate funding to reach this goal.

CBI commented that UK banks currently account for 80% of all credit given to growing businesses, however the current economic climate has changed the traditional norms within finance.

The group said that regulatory reform, balance sheet restructuring and a more realistic pricing of risk mean that traditional bank lending will no longer be the correct route for every business.

Katja Hall, CBI chief policy director, commented: “The UK’s small and medium-sized businesses are the backbone of our economy so ensuring they can access the capital they need to grow and create jobs is critical.

“Banks will continue to be a vital source of finance but it’s not a one-size-fits-all solution, and we’re encouraging growing firms to open their eyes to the broad range of funding options on the market.

“Growing businesses could look to corporate venturing, for example, or to issue retail bonds, like Hotel Chocolat did with its innovative chocolate bonds.”

Vince Cable, Secretary of State for Business, added: “Britain’s businesses cannot grow, export and innovate without proper access to bank credit.

“But they also need alternatives when looking for finance, as a traditional bank loan might not always be the answer.”

CBI have launched a guide, called ‘Ripe for the Picking’, which give advice on how to consider different financing options.

Dr Cable continued: “The CBI’s guide will help raise awareness of the different types of finance available, and how alternative credit channels can introduce more competition to give SMEs choice.

“The Government wants to see a shift in the market structure towards non-bank lending, and through the business bank is deploying £300 million of the £1 billion allocated to the initiative to invest alongside the private sector in new entrants and the growth of smaller lenders.”

This was posted in Bdaily's Members' News section by Miranda Dobson .