The government are to discuss this week how the proposed Small Business Credit Adjudicator, outlined in the 2010 Budget report, will work.
In a bid to increase bank lending to businesses, Alistair Darling devised the scheme that will give small businesses the chance to appeal against a loan rejection by the bank.
The body will be under the control of the Department for Business and will assess the lending decisions made by banks, while having the legal powers to enforce judgments where it believes a business has been wrongly denied a loan.
With the Conservative Party declaring they need to see further details before choosing to back the scheme, and a Labour Party in need of votes admitting it will not be in place until after the proposed 6th May election, it remains to be seen whether the idea will be realised.
The Federation of Small Businesses (FPB) Chief Executive, Phil Orford, backs the adjudication scheme but believes more transparency is needed. He said: “I cautiously welcome the way the Chancellor acknowledged the importance of smaller businesses to economic recovery.
“The creation of an adjudicator for firms to go to when they are denied credit by the banks should be useful, but we need to know how the banks will get businesses back through the doors and get the money moving that has been ringfenced for lending.”
While on paper the scheme has the potential to facilitate access to much needed funds, it is worth considering alternative methods such as invoice finance which releases cash against a business’ sales ledger, often its largest asset, in order to bridge the gap between providing a service and being paid.