Call for flexibility in small business finance

The Federation of Small Businesses (FSB) is calling for greater flexibility in the traditional forms of finance that are available to small firms and has argued that the current review of the Government’s Small Firms Loan Guarantee (SFLG) scheme, the results of which are expected in the next two weeks, is an ideal opportunity to make the scheme more flexible.

According to the FSB’s third biennial membership survey, the percentage of business owners using bank loans has fallen from 44 per cent to 30 per cent over two years. The number relying on credit cards has risen from 18 per cent to 25 per cent over the same period.

The increasing popularity of credit cards as a method of business finance reveals that flexibility, speed and ease of use are key concerns for business owners.

Small Firms Loan Guarantee

For more than 20 years the SFLG has been the principal method through which the Government assists businesses in securing bank loans. But, it has been criticised for being so overly bureaucratic that businesses can wait up to six months for notification of whether applications have been successful.

Many delays are the result of duplication in the application process which requires both the bank and the DTI to approve a loan. The FSB wants the government taken out of the loop leaving the banks to make decisions about the loans.

FSB Financial Affairs Chairman Neil Hamper said: "There are important lessons to be learnt from the increasing popularity of credit cards notably that many businesses are not able to wait six months to get their hands on funds.

"The Government must take a step back from the Small Firms Loan Guarantee scheme but also continue to encourage banks to offer more loans."