SMALL businesses are calling on the Government to create more competition in the increasingly consolidated banking sector.
The Federation of Small Businesses (FSB) said more competition is necessary if the country is to avoid a double-dip recession.
The organisation spoke out in its response to the Government’s Financing a Private Sector Recovery consultation, which closed last week.
It said the Government must take action to improve the credit market for small firms because current lending conditions have made it impossible to return to business as usual. More than four out of 10 small firms use a bank loan, overdraft, leasing or factoring for major credit purposes.
But those which rely on the bank as their main source of finance are being penalised by high interest rates despite the base rate being at an all-time low, the FSB said.
It pointed out that 10 years ago more than 80% of the small business financial market was held by the four main high-street banks.
It wants the Government to act radically to broaden the market and increase competition to help small firms seeking start up finance or money to grow their businesses.
The FSB’s submission to the consultation called on the Government not to sell its shareholdings in nationalised and capitalised banks to other banks. It wants the Government to create a Post Bank through the Post Office network, which would either be owned by the state or run as a mutual or trustee bank.
It also wants the Government to introduce regional capital markets and community investment funds and to promote financial intermediaries to viable small businesses unable to access credit.
In the US, credit unions are a major source of finance for the small business sector and a number of European Union states operate regional stock exchanges.
FSB North East policy manager Simon Hanson said: “During the recession the FSB has actively sought to promote lending to small businesses, be that through the banks or Government-backed schemes such as the Enterprise Finance Guarantee.
But despite this help, firms are still facing an uphill struggle.
“Demand for finance is at its highest as the economy enters recovery – something which the UK economy is tentatively moving through.
“If the Government truly believes that the private sector is going to help avoid a double-dip recession, it needs to consider alternative sources of finance.
“Small firms don’t have a huge amount of scope in accessing finance, unlike larger businesses. More competition in the sector will mean greater competitiveness in terms of the cost and the services provided and give access to the type of finance which large businesses are able to tap into.”
