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Bank charges and loans, business growth & Development, Business News

New lending stream for small business announced

New lending stream for small business announced

Peter Mandelson, the Business Secretary, has recently announced plans for a government-run investment bank that will be used to release badly needed funding for small businesses.

The bank is to be modelled on Germany’s KfW banking group, which Lord Mandelson has taken a recent interest in. The bank is to be setup as an alternative source of financial support and will use private and public capital to invest in small businesses.

The UK’s Treasury is consequently writing up a proposal to be included in the UK’s Budget. Lord Mandelson believes that an government lead investment bank is highly likely to create funding streams in areas that high-street banks may have previously dismissed.

However, Sole traders are not so lucky, according to a recent report by JP Morgan, sole traders and private customers alike are likely to suffer higher bank charges if proposed regulations in the sector are adopted.

The report shows that UK banks would need to raise almost £60 billion in order not to fall foul of new regulations. The proposals are intended to boost the banks’ capital positions in an effort to avoid a repeat of the current economic crisis.

As business banking is already paid for by companies, there is a concern that a lot of the shortfall will be made up by private customers such as sole traders. This could be through monthly charges or inflated transaction costs.

This move would be very unwelcome news for sole traders, many of whom use a personal bank account to conduct business through. JP Morgan has estimated that the price of all banking products would have to increase by roughly 33% in order to make up the shortfall.

Related articles:

Small businesses to benefit from Government run investment bank

Banks still letting small businesses down


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Photo by Michelle Meiklejohn

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