Fears New International Banking Rules Could Limit SME Lending

The Federation of Small Businesses (FSB) has aired concerns about the negative impact proposals to introduce new international banking rules could have on smaller businesses in the UK.

The Basel Committee on Banking Supervision, a group that sets global banking standards, has proposed raising the amount of capital banks are required to hold against certain loans.

There is a fear this could make it significantly harder for Britain’s SMEs to access credit from the big banks. At present, the four leading banks control 85% of the small business lending market.

In response to these proposed changes, the FSB has sent a letter to Chancellor George Osborne arguing that there is a risk banks will have to dramatically increase the cost of lending to small businesses if these changes are given the go ahead – placing further pressure on businesses already struggling to obtain credit.

More small businesses will struggle to borrow from banks

John Allan, National Chairman for the Federation of Small Businesses, believes changes such as this could thwart the ambitions of smaller companies and further complicate an already complex banking system.

He said: “Our research shows that small businesses are currently in a robust mood. Nearly two-thirds of those surveyed (65.3%) signalled a desire to grow, helping to sustain the economic recovery through 2015.

“But the Basel Committee proposals will make it harder for small firms to access funding and threaten to derail their ambitions for growth.”

Also lobbying the government to fight against these new international banking proposals is the BBA – the UK’s leading association for the banking sector.

Adding to the argument, Anthony Browne, Chief Executive of the BBA, said: “Small business lending did not cause the financial crisis and yet SMEs stand to lose out if these troubling new rules are introduced.

“The proposals also threaten to make mortgages more costly, creating difficulties for those trying to take their first steps on the housing ladder.

“We want the Chancellor to put pressure on the Basel Committee to rethink these measures before they destabilise the borrowing prospects of our small businesses and first-time buyers.”