The Treasury Committee of Parliament has issued a warning, expressing concerns over unfair banking practices and the detrimental impact of financial regulators on small businesses.
A report stemming from the committee's inquiry into access to finance for small and medium-sized enterprises (SMEs), highlighted a lack of supportive policies exacerbating challenges faced by businesses, particularly amidst the turbulent circumstances of the past five years, including the global pandemic and energy crisis.
The report noted a decline in SMEs' confidence in accessing finance, coupled with significantly lower acceptance rates for business credit. It attributed these trends to unfair banking practices that may have further restricted access to finance and suppressed demand, consequently disincentivising risk-taking, innovation, and potential growth among small businesses.
MPs identified various detrimental practices harming firms, such as the use of personal guarantees, where borrowers are required to leverage their homes as collateral against loans. Additionally, the report highlighted concerns about "debanking," wherein banks have closed 140,000 SME accounts in 2023 alone, often without adequate explanation. This practice disproportionately affects sectors considered less desirable by banks, including defence, pawnbroking, and amusement machines.
Moreover, the report criticised the substandard processes for resolving disputes between SMEs and their banks, emphasising the need for improved mechanisms to address disagreements effectively.
