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Traditional Business Loan Granting Methods.



Traditional Loan Granting Methods Still Do Not Help Small and Medium Enterprises Despite Improving Bank Situations

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canstockphoto4324001 So, are all the faults of the banks? It is certainly true that after obtaining government funding in the aftermath of the financial crisis, banks drastically reduced the activity of providing loans to small and medium-sized enterprises. For example, last year’s report by former Vice President of the Bank of England, Sir Andrew Large, showed that the amount of loans granted to small businesses by the Royal Scottish Bank has decreased by 2008 by 17 billion pounds and even profitable small businesses have been pushed into bankruptcy as a result of a restrictive policy bank regarding the granting of loans. Undoubtedly, there is a widespread view that banks are losing small businesses in the UK by refusing to finance them, while a survey conducted last year by the Federation of Small Enterprises revealed that over half of small business owners believe that banks do not care about their activities. This kind of thinking is supported by politicians who care about people seeing that they refer to banks with all their severity. However, blaming only those financial institutions may not be fair, because the Demos Finance report of the year revealed that they reject only 1 out of 25 applications for loans to small businesses. Perhaps more eloquent is the fact that only 40% of small companies in the UK applied for a loan in the previous year. Problems with Traditional Loans The headline suggests that it’s not stingy bank directors are leveling the chance to improve the situation of small businesses in the UK, but rather that there is a structural problem with the traditional methods of lending alone. As part of stricter rules since the financial crisis, banks require an additional guarantee in the form of collateral and a guarantee guarantee, which many small companies, especially new ones, simply can not provide. In a situation when big banks have their hands connected with granting loans, one of the remedial measures may be opening the loan market to alternative and more flexible options for small businesses. Support for Alternative Lenders Director of Demos Finance Andrew Freeman wrote in The Spectator that “Our national debate on financing enterprises has been depleted because we insist on seeking rescue only in banks.” Freeman believes that we should not concentrate on traditional lending methods so far, because UK mixed economy requires different financing options, as well as that state policy should support various methods of non-bank lending to domestic companies.

 

Government programs such as the Business Finance Partnership, created to increase the scale of lending to enterprises by institutions other than banks, can be seen as a step in the right direction. However, support for an alternative loan market in the United Kingdom requires further measures to provide new financing options for small businesses.