Forum welcomes new bank that promises SME lending

The Forum believes more competition between leading banks and allowing alternative funders to compete in the finance markets they dominate – including via substantial tax breaks for private lenders – would help to address the perception of small businesses as risky propositions and subsequently bring down lending costs.

Shawbrook Bank - a subsidiary of RBS Equity Finance – began trading with the claim customers will be able to borrow at genuinely competitive rates, and in most cases have a definitive answer within 24 hours on whether their loan application has been successful. Businesses will not even need to hold a current account with the bank to access its services.

While the Forum believes the development is potentially good news for some small businesses struggling to access affordable finance, the new bank alone will not solve the lending problems they face. “The bank represents a new source of finance for small firms and that is certainly a positive development,” said the forum’s campaigns manager Jane Bennett. “But it has to be put into perspective. Shawbrook’s model is lending against the value of a property, a form of asset finance rather than a return to the strong relationship banking that we want to be the bedrock of commercial finance in the UK.

“While a target of lending £250 million per year is not huge, the funding that will be available via the new bank should not be dismissed out of hand. However, there is a great deal of work still to be done to improve competition in order address the over-centralised, tick-box nature of today’s banking system, and to restore local decision making powers to branch managers who truly know the businesses in their areas. Providing better relationship banking is how to ease the punitive risk criteria we have seen in recent years, and subsequently bring down lending costs.”