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Make non-bank finance available for SMEs, says CBI

"Growing firms also need ‘patient’ capital."

Making alternative sources of debt such as non-bank finance available for small and medium-sized enterprises (SMEs) could help reduce risks and support in business recovery, the UK’s employers’ association CBI said today.

In its February submission to the review led by Tim Breedon into alternative sources of debt, the CBI suggests ways to boost the supply of non-bank finance, as well as solutions to the current lack of demand.

The CBI also suggested that removing barriers to secure non-bank lending would be helpful to SMEs, which for a long time have depended mostly on bank lending.

Greater access to less complex non-bank credit such as bonds and private placements will also help smaller firms to effectively run their businesses under volatile or slow economic conditions.

John Cridland, director-general at CBI, said: “While banks will remain an important part of the funding landscape, growing firms also need ‘patient’ capital, with a longer investment return horizon. To deliver this, we need to give our firms access to new sources of funding, such as by opening UK bond markets to medium-sized businesses.

“The government’s £1bn of business finance partnerships will also help stimulate investment in these companies.”

In an effort to meet the needs of SMEs, the CBI is also proposing the independent financial advisers (IFAs) programme.

To encourage small and medium-sized businesses, the UK’s top business lobbying organisation recommends creation of a mid-sized bond market in the country, provision of short-term tax incentives, and sensitisation of non-bank finance sources in the country.

“This is as much a problem of demand as supply. Firms need independent help and support to locate the finance that’s right for them. So we must cut through the red tape and complexity surrounding non-bank finance to make it more easily understood by small and mid-sized businesses, which often lack the resources of a larger company.

“We also need to make it simpler for alternative lenders to judge the credit worthiness of SMEs,” Cridland added.