Small businesses have increasingly begun to turn to alternative lenders rather than traditional banks of late, largely due to the fact that banks remain wary of lending after the fallout of bad loans resulting in the financial crisis of 2008.
While the situation may have improved somewhat as a result of the government pressuring banks to aid small business growth, a worrying number are still being turned down for loans – meaning that company expansion in various sectors is being stunted.
Now a new report released by the Office of Fair Trading (OFT) suggests that, in some cases, banks are preventing peer-to-peer lending agreements from going ahead by delaying the sharing of account information or failing to process paperwork in a timely manner, while others have set in place conditions requiring businesses to open an account with themselves before allowing a loan to go ahead.
The OFT has warned banks involved in the inquiry that further action could be taken against them if they fail to alter this behaviour.
OFT chief executive Vivienne Dews says; “SMEs are a vital driver of growth in the UK. They need access to banking services and loans which meet their needs.”
The report, released as an update of the OFT’s ongoing investigation into business banking, suggested measures geared towards improving the service business customers receive from High Street banks – the majority of which banks have agreed to take on board. However, it is still to be decided whether the Competition and Markets Authority, which takes over from the Competition Commission and the OFT in April, will make the decision to refer any individual banking chains for a full competition investigation in the summer.
One of the key issues raised by the OFT is the failure of a number of banking chains to take on board the findings of the previous investigation conducted by the Competition Commission 12 years ago. Business Secretary Vince Cable points out that not only do certain negative practices outlined in the investigation reduce accessibility to loans for business customers, but also reduce competition – something he claims is “not healthy for the economy.”
In response to the latest criticisms, the British Bankers Association has pointed out that it has already taken a number of steps to ease the lending process from alternative lenders for business customers, such as working out which lender gets priority should a borrower default on a loan. It also details ways in which the banking industry advises SMEs who have been turned down by traditional banks, such as pointing them towards community finance initiatives or switching their application to one for a start-up loan.
BAA chief executive Anthony Browne says; “We want businesses to have as many options as possible when seeking to get finance, which is why individual banks and the BAA have set up programmes to refer customers to other institutions.”
