On 17 October a new British bank, Shawbrook, was launched to provide finance to small and medium sized enterprises (SMEs) struggling to get funding from the UK's biggest banks, which in turn are grappling with expensive debt burdens and tight capital markets.

The bank has promised to lend £250 million per year exclusively to small businesses.  However, the Forum for Private Business is calling for steps to improve traditional small business relationship banking in parallel to the asset-based lending provided by Shawbrook.

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.

 “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.”

She continued: “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 to 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.”

The Campaign for Community Banking Service’s Derek French agreed that £250 million per year is a relatively small sum, but conceded that the new bank is a step in the right direction for small businesses.  “You have to welcome any new service in finance for small business these days, but it’s essentially asset finance.  It’s going to be leant against property, so they won’t be taking a punt on any business,” he said.

Mr French was also sceptical about Shawbroook’s claim that most credit applications would be turned around in 24 hours.  “You may have got the ‘yes’, but they are conditions that take longer than 24 hours to arrange.”

The Forum is calling for better banking services and more competition within finance markets as part of its Get Britain Trading campaign.  For more information e-mail getbritaintrading@fpb.org, visit www.fpb.org or call 0845 612 6266.