Thinktank ResPublica Has Called For Reforms That Would Enable Building Societies To Lend To SMEs

The government should do more to ensure small and medium-sized enterprises have access to funding in order to boost the overall economy.

This is one recommendation made in a new report from thinktank ResPublica, which has outlined wider proposals for introducing civic finance to broaden the financial markets.

'Markets for the Many: How civic finance can open up markets and widen access' calls on the government to take a more holistic approach to banking reform and for one aspect of this to be to encourage building societies - rather than just banks - to provide loans to small businesses.

Building societies are currently largely focused on consumer lending and mortgages and largely prevented from entering the corporate market by operational limits, but ResPublica believes loosening these constraints and enabling them to lend to SMEs that are struggling financially would help the economy.

In order for this to happen the thinktank says the Treasury needs to broaden the Banking Reform Act to include reforms that are also applicable to building societies. It called for the introduction of a trigger policy - meaning any future reforms that are made to bank policy will automatically result in a review of rules applying to building societies, to ascertain whether changes to bank policies would have a negative impact on building societies.

Director at ResPublica Phillip Blond noted that while the economy has entered a period of growth following the significant downturn of previous years, there is not a structure in place for it to be sustainable.

"Until we get a proper structure for the funding of small business, we cannot secure Britain’s long term prosperity," he explained, adding that building societies "can and should lend to our small businesses" if they are freed from regulatory restraint.

Shadow financial secretary to the Treasury Cathy Jamieson agreed, arguing the government should be doing "all it can" to support growth of building societies, so they in turn can help small businesses achieve their goals.

Expert Opinion

Access to finance remains one of the biggest obstacles affecting small businesses at present and it continues to impact them despite the improvements being seen in the economic climate in recent months. <br/> <br/>"The Government and other commentators believe that small businesses will drive further improvements in the economy, but this will only be possible if they have access to the support they need to get their ideas and innovations off the ground. <br/> <br/>"It is vital that this changes and any ideas on how to address this should be carefully considered by the Government. We would also urge small businesses to think carefully about the finance opportunities available to them and also seek professional advice regarding such options." Fergal Dowling - Partner