SME access to finance call for evidence
Commenting on the government’s publication of a call for evidence on SME access to finance, Emma Lovell, Lending Standards Board (LSB) chief executive, says: “SMEs are the backbone of the UK economy, and it’s vital these businesses have reliable access to the finance they need to grow and thrive. But it’s important there’s a balance between the ability to access finance quickly and being able to do so safely. The LSB’s Standards of Lending Practice for business customers – the only independent lending protections for many UK SMEs – have a key role to play here and help support innovation and growth within the financial services sector while mitigating risks SMEs might otherwise face.
Personal Guarantees & Ethnic Minority-led Business Access to Finance
“The government’s new call for evidence looks at two areas of particular importance: access to financial services for ethnic minority-led businesses and personal guarantees.
“As the call for evidence notes, ethnic minority-led businesses are among the UK’s most ambitious. But research for the LSB by RFI Global, out today, makes clear the challenges these businesses face when seeking to access financial services. For example, just 19% of UK EMBs applying for a lending product in the last 12 months had their application accepted for the full amount, compared to 58% of White British-led SMEs. To address the challenges EMBs face, this spring the LSB is launching a new Access to Financial Services for Ethnic Minority-led Businesses Code.
“Last year, the LSB strengthened provisions on personal guarantees in its business standards to ensure lenders are clear with guarantors about what they are signing up to, and to help avoid situations where a guarantor is surprised to find out they are personally liable for lending to a business.
“Although we identified a need for some improvements, it’s worth noting that we found issues with personal guarantees among our registered firms were rare. Lenders typically only call on these as a last resort, and there are very few complaints about their use. Personal guarantees can play an important role in helping SMEs access the finance they need, quickly, and it’s important any added protections do not add undue friction to lending journeys that could leave SMEs facing worse outcomes because they can’t access crucial funding.”