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A cross-party committee of House of Commons MPs this week launched an inquiry into the challenges faced by small businesses when seeking finance.

After more than a decade of low-interest rates, higher borrowing rates are eating into corporate and SME business profit margins, especially amongst the many businesses that took on debt during Covid.

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The OECD – a club of 38 rich countries – said inflation in the UK rose to 7.9% in May, up from 7.8% in April, while among the countries of the G7, the rate slipped to 4.6%, down from 5.4%.

“Inflation declined in all G7 countries, apart from the UK, where inflation edged up, as core inflation continued to rise,” the OECD said.

Harriett Baldwin MP, Chair of the Treasury Committee, said the committee would investigate: 1) how easy it is for small firms to access finance, 2) the role of financial innovation and 3) the regulation of small business lending.

SME financing

The inquiry will also examine the role of the Bank of England’s Term Funding Scheme, credit reference agencies and Government state aid in encouraging small business lending. The MPs are also set to consider the role the Government can play in enhancing access to small business finance, the impact of covid schemes on businesses, and the role of the British Business Bank.

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Basel 3.1 reforms

In terms of consumer protection and access to finance, the Committee will also explore whether SMEs have adequate access to a complaints procedure for disputes with banks or lenders, the effectiveness of the Business Banking Resolution Service, whether business lending should be regulated, the impact of Basel 3.1 reforms on access to finance, and the performance of the Financial Ombudsman Service (FoS) in handling complaints.

Industry issues for MPs

  • What are the key challenges SMEs face when seeking finance? 
  • Which channels do SMEs find the most successful when seeking funding and why? 
  • What role can financial innovation play in SME finance? Is there more the government and the regulators can do to improve access to finance through innovative firms? 
  • How accessible is finance for SMEs of different sizes? 
  • Is finance available to allow SMEs to scale up from venture capital funding? 
  • How successful has the Bank of England’s Term Funding Scheme with additional incentives for SMEs (TFSME) been at encouraging banks to lend to SMEs? 
  • What role do credit reference agencies play in supporting SME finance?  
  • What impact has the RBS bailout state aid Alternative Remedies Package and its various funds for SMEs (implemented by Banking Competition Remedies Ltd) had on SME access to finance? 
  • Is securing access to SME finance particularly challenging for women, people from ethnic minorities, certain social classes, or any other group? If so, what should be done about it? 

The Committee invites written evidence submissions by 5pm on Sunday 13 August 2023.

‘CCA reform can’t be delayed, derailed, or decreased in scope’