Shifting the financing of UK SMEs away from bank lending
The Taskforce headed by Tim Breedon of L&G on developing alternatives to bank lending for SMEs has reported today. The report can be read here. The accompanying press release from the Department of Business, Innovation and Skills is here.
We reported on the launch and purpose of the Taskforce in this post in December 2011.
Recommendations of interest to Corporate lawyers
The Taskforce’s recommendations that will be of most interest to Corporate lawyers centre on increasing access to the capital markets for SMEs and small businesses. These are set out in part 5 of the report, “Improving access to capital markets financing for UK companies” and in summary are:
Improving Access to Capital Markets Financing for UK Companies:
Launch a feasibility study, led by the Association of Financial Markets in Europe, to explore the creation of an aggregation agency to lend directly to SMEs and/or to pool SME loans to facilitate SME access to the public corporate bond markets.
Increase the number of UK-based Private Placement investors through an industry initiative led by the Association of Corporate Treasurers.
Increase the UK retail investor appetite for corporate bonds through (a) launching electronic retail-dedicated gilt products available through registered stock exchanges; and (b) introducing additional tax incentives for investing in SMEs.
The Taskforce’s other recommendations are:
Increasing Awareness and Demand for Alternative Forms of Finance:
Introduce a Business Finance Advice scheme.
Improve communication of Government support programmes through the creation of a single brand for its interventions.
Responsibility for delivery of Government Access to Finance programmes should be consolidated into a single delivery agency.
Stimulating Growth Through Supporting Smaller Companies:
Government should (a) require that benefits to large companies of its prompt payments are passed on to their suppliers; favourable payment terms should be withdrawn if those agreements are not met (b) explore practical ways to encourage faster payments by large companies (c) work with industry associations to promote invoicing best practices to enable more effective enforcement of the existing legislation on late payment.
Government should (a) explore how it can use its power as the biggest purchaser in the UK to encourage its own suppliers to adopt supply chain finance or similar schemes to support their suppliers; and (b) work with banks, industry associations and professional bodies (such as the ACCA, ICAEW), to accelerate adoption of Supply Chain Finance.
Developing New Financial Products:
Government should explore the potential for the Business Finance Partnership to make commercially attractive investments in the following: Online Receivables Exchanges, Mezzanine Loan funds; and P2P lending platforms.
The Evolving Regulatory Environment:
UK authorities and business representative bodies should provide an evidence-based perspective of the impact of international regulatory measures on the provision of bank and non-bank finance to UK SMEs and update their evidence on an annual basis.
The BBA should explore greater credit data sharing with non-bank providers, and this should be considered by the FCA.
Government should consider whether further data could be made available to support the development of new finance products and markets to benefit businesses.
An industry-led taskforce should be launched to make specific proposals on how to remove barriers on bank lending to support SME trade finance.
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