Vince Cable stated this week that challenger banks could help revitalise the economy by simply lending out investment funds that are backed by the state to SME’s. Some of the more popular Challenger banks such as Aldermore, Handelsbanken, and the Co-Operative could primarily focus on funnelling cash from the state investment bank out to the small businesses that need better financing options so that they can continue to expand and grow.
Over the past year about a third of all SME’s have been rejected for finance by banks as banks continue to tighten their lending restrictions. The government believes that the lack of funds for small businesses is continuing to hold back the UK from recovering from the recession. Although the scale of the intuition and the lending structure is still being debated, Cable has talked about how challenger banks would be a great way to disseminate funds.
This is due to the fact that many of the banks are new to the financial sector and can be used as models as the industry continues to grow and change in the wake of the 2008 banking crisis. The idea is that the banking industry will have to get competitive with what they will offer SME’s to get small business competitive and better rates.
Cable also announced £140m boost that has been created with the intent of building better skills and to help tackle the effects of the credit crunch. The Bank of England would be responsible for backing the credit easing schemes so that British banks could offer cheaper loans to businesses because they have a secure guarantor on the loans. This in turn would help make financing more affordable for SME’s and more available to those that need it helping to fuel the economy on a local level.