On March 13, HM Treasury (HMT) issued a call for evidence to better understand the challenges small businesses face in accessing debt finance. The government aims to gather perspectives to inform future policies that support small and medium-sized enterprises (SMEs).

The call for evidence seeks to address why UK SMEs are less likely to seek debt finance than their international counterparts. HMT suggests this may be driven by factors such as risk aversion, limited financial awareness, and concerns about debt repayment, all of which may discourage SMEs from seeking external finance. While the consultation focuses on small business debt finance, there may be opportunities to highlight the role of securitisation and private credit in improving SME financing options.

Key Themes of the Consultation

• Non-Bank Lenders and Private Credit: The consultation acknowledges the growing role of non-bank lenders, including private credit providers, in SME finance. The government is keen to understand how these models are improving access to finance.
• Risk Aversion, Financial Awareness, and Use of Finance: HMT is exploring whether SMEs' limited financial knowledge or reluctance to borrow are restricting growth. Evidence suggests many businesses avoid external finance due to uncertainty, fear of debt, or a preference for internal funds, potentially causing them to miss growth opportunities.
• Structural Barriers to SME Finance: The consultation examines how personal guarantees may deter borrowing, how intangible asset lending models could be improved, and whether regulatory changes could increase trust, consumer protection, and competition.
• Alternative Lending Models: The review explores the potential role of cooperative banks, non-profits, and Community Development Financial Institutions (CDFIs) in expanding SME access to finance.
• Under-Served Groups: HMT is also focused on improving access to finance for women, ethnic minority entrepreneurs, and businesses in deprived areas, seeking insights on current barriers and potential solutions.

The call for evidence will run until 8 May. We welcome members to share any feedback or input. For further information please contact Nicholas Smith ([email protected])