Why George Osborne is asking banks to promote alternative finance

New legislation is due to be announced in the Queen’s speech next week forcing banks to direct SMEs to alternative finance channels. As you might expect, these proposed new laws have faced vehement opposition from the banks, despite this, both George Osborne and Vince Cable are pioneering the movement.

Under these new laws, if a business is rejected by the bank for finance, the bank must refer them to an alternative lender. This revolutionary approach is designed to break down the restrictive barriers around lending and allow for greater competition from the wider market – where the banks hold 85% of the market share. It also allows SMEs to consider more viable options that could be faster and more effective for their financial needs.

This move follows research demonstrating that most SMEs still head straight to banks for finance and when they fail to meet the banks’ tough standards many of these businesses scrap plans for growth.

Alternative finance methods rocketed to popularity during and after the credit crunch and continue to grow, with the sector boasting a growth of 91% in 2013. This movement looks set to continue growing in momentum, providing finance to SMEs that in turn will grow and boost the UK economy.

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