Banks are inhibiting small business expansion, says Office of Fair Trading

Small businesses might still be getting financially suffocated by banks, the Office of Fair Trading has warned.
Releasing their latest data in their ongoing evaluation of the business banking sector, the OFT identified that it was at the lack of competitor within the industry at present.
It added that banks might be inhibiting small and medium companies from acquiring loans from other sources other than in the banking sector, and called for new policy to implemented in order help make it easier for businesses to survive away from the banking sector.
“SMEs are a vital driver of growth in the UK,” said Vivienne Dews, the chief executive of the OFT.
“They need access to banking services and loans which meet their needs,” she added.
ëNot healthy for economyí
The primary issue that the OFT have raised is that banks are allegedly making it supremely difficult for small and medium sized businesses to acquire finance from different lenders outside the banking industry, and in particular through peer to peer and Crowdfunding sites.
The OFT cited that when businesses disclose to banks that they intend to obtain funding from an alternate source, that banks intentionally take a lengthy period to pass on their data to the new provider, and also take a long time to produce the necessary paperwork for switching. 
 
They added that despite a Competition Commission undertaken 12 years ago, that certain banks continue to renege on the code of conduct that was derived from its findings, accusing certain groups of engaging in the art of ëbundlingí, which involves banks forcing clients to open accounts with them when they receive a loan.
Business Secretary Vince Cable argued that problems still exist when it comes to competition in the banking sector, and called for new policy to be introduced that will help improve the financial flexibility available to small and medium sized businesses. 
“SMEs feel they have too few lending options other than the big four banks, which is not healthy for the economy,” he said.
“The picture of concentrated ownership and excessive profit margins from SME banking described in the 2000 Cruickshank Report remains largely unchanged,” he added.
ëAs many options as possibleí
The banking sector has reacted positively to the OFTís remarks, pledging to work collectively with policymakers in order to make the process of transferring data quicker when small businesses opt to acquire funding from external lenders.
A key aspect that needs to be resolved is ascertaining which lender has the primary right to pursue repayment should the borrower default on their loan.
The British Bankers Association has already instigated a referral system which looks at businesses cases if they complain about a banks refusal to lend to them.
“We want businesses to have as many options as possible when seeking to get finance, which is why individual banks and the BBA have set up programmes to refer customers to other institutions,” said Anthony Browne, its chief executive.

 

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