The UK Treasury Committee has raised concerns over the increasingly difficult circumstances for small and medium-sized enterprises (SMEs) seeking access to finance.  

The report from the committee’s inquiry points to unfair banking practices and “needlessly” stringent financial regulations as key factors stifling SME growth and innovation.  

With over 140,000 SMEs experiencing account closures last year alone, the cross-party group of MPs of the committee warned that such conditions are disincentivising risk-taking and potentially hampering economic progress. 

The inquiry’s findings reveal a decline in SME confidence and acceptance rates for business credit, alongside a rise in de-banking and ineffective dispute resolution mechanisms.  

The committee criticises the alleged requirement of collateral for disproportionately small loans, suggesting it may suppress demand and limit access to finance.  

As SMEs constitute more than 99% of the UK’s business population and provide nearly half of the employment, the report stresses the importance of not jeopardising their financial accessibility. 

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The report identifies the Prudential Regulation Authority’s introduction of Basel 3.1 standards as a potential threat that could exacerbate the situation for SMEs by imposing more stringent capital requirements.  

It calls for the abandonment of additional burdensome measures for SMEs.  

Furthermore, the committee urges the government to support the 55,000 SMEs currently served by the Business Banking Resolution Service. 

The Financial Conduct Authority (FCA) is also under scrutiny, with the committee demanding clearer guidelines on the use of ‘risk appetite’ and ‘reputational risk’ criteria.  

The committee insists that SMEs engaged in legal operations should have guaranteed access to banking services and that banks should not be permitted to close accounts based on subjective risk assessments.  

It also recommends annual assessments of the British Business Bank’s effectiveness. 

Lastly, the FCA is expected to leverage its review and existing powers to address the misuse of personal guarantees and empower the Financial Ombudsman Service to handle related business complaints. 

Chair of the Treasury Committee Dame Harriett Baldwin said: “There’s no hiding from the fact smaller firms have had a torrid time over the last few years. Unfortunately, what we have found over the course of the inquiry is that there are some instances where banks and regulators are making a tough world for small businesses needlessly tougher.  

“Banks and regulators cannot wave a magic wand and solve all of the problems facing small businesses in this country, but they can certainly do more than they currently are. I hope banks, the regulators and the Treasury take careful note of what we have uncovered.”