Small Business, Enterprise and Employment Bill

Written evidence submitted by Finance & Leasing Association (SB 55)

1. Introduction

1.1. The Finance & Leasing Association (FLA) represents the UK’s providers of asset finance (leasing and hire purchase). Our members include banks, independent asset finance businesses, and captive finance companies owned by equipment manufacturers. In 2013, our members provided £22.4 billion to businesses and the public sector to invest in vehicles, plant and machinery and business equipment. This represented almost 30% of UK fixed capital investment (excluding property and own-account software).

1.2. FLA members are a vital source of new finance for small and medium-sized enterprises (SMEs). Of the total new business written by FLA asset finance providers in 2013, £12.6 billion was provided to support business investment by SMEs. The majority of SMEs which apply for asset finance are successful in obtaining the finance they need. A recent BDRC Continental SME Finance Monitor survey showed that 87% of asset finance applications are successful. FLA members had more than 2 million outstanding business finance contracts on their books at the end of December 2013, worth £63.4 billion.

1.3. The FLA welcomes the opportunity to comment on the Small Business, Enterprise and Employment Bill. The Bill sets out a range of provisions that aim to encourage SME growth. We comment below on two particular proposals in the Bill, which concern access to finance: a new statutory requirement to share credit data, and a loan referral system.

1.4. In principle, the FLA supports initiatives which will assist the UK’s SMEs in accessing appropriate finance. FLA members believe it is in the interests of customers, and the asset finance industry, to share credit data and make appropriate referrals. If changes are to be made to improve access and increase approval rates (which for asset finance are already high, as shown in para 1.2 above), we have advised the Government that it should identify very carefully the problems it seeks to solve, and look in the first instance for market-based solutions.

2. Credit data sharing

2.1. The Small Business, Enterprise and Employment Bill proposes that the ‘the Treasury may make regulations that impose a duty on designated banks to provide information about their small and medium sized business customers (subject to the latter’s consent) to designated credit reference agencies’ (the proposed shared data will be taken from business current accounts, commercial credit cards and loans) and impose a duty on ‘designated credit reference agencies to provide information about small and medium sized businesses to finance providers’.

2.2. The FLA believes that it is important that when making suggestions for new arrangements to share credit data, the Government is aware that such arrangements already exist, under the Principles of Reciprocity. The Principles are administered by the Steering Committee on Reciprocity (SCOR) and have been developed by representatives of the credit industry and the credit reference agencies. The main thrust is that data must only be shared for the prevention of over-commitment, bad debt, fraud and money laundering, and to support debt recovery from debt tracing. Under this regime banks and non-banks currently share a wide range of credit data.

2.3. The existing arrangements are also aimed at ensuring that data protection law is strictly adhered to when credit data is shared. The FLA supports the Government’s commitment to data protection in the Bill (Clause 4.4b). We would like reassurance from the Government that any data which will be exchanged under the proposed new regime will be handled to the same exacting standards.

2.4. The FLA would be happy to assist the Government when it drafts secondary legislation on credit data sharing.

3. Loan referral system

3.1. Via a new clause to the Bill (NC1), the Government seeks to establish a referral system for companies that have had their loan applications rejected. The Government proposes that multiple online platforms be created to facilitate these referrals. Secondary legislation may also be required to create rules governing the operation of multiple online platforms. The FLA would be happy to assist the Government when it drafts secondary legislation on the proposed loan referral scheme.

3.2. The Government’s proposal raises a number of issues. The FLA would like the Government to explain further how the multiple platforms will work in practice, as it is unclear in the legislation how the banks will decide which platform to use when referring a customer. There is potential for confusion and unnecessary administration. If the owner of an online platform is also a finance provider it will also be important to address potential conflicts of interests. For the multiple online platforms to work effectively it is important that the right questions are asked of the small businesses concerned. For instance, a small business may be seeking a loan in order to purchase equipment and not have thought of using leasing or hire purchase.

3.3. The FLA notes that the major banks already refer loan applicants to other providers when appropriate. The Government believes that a large proportion of SMEs who are turned down for finance do not approach another lender. It would be useful to understand more about this group of companies and why the Government thinks that they would be more likely to be obtain finance from another provider after having their application rejected.

3.4. The FLA believes that one role for Government in this area would be to support the creation of a comprehensive online directory of finance providers. It would allow businesses which need finance quickly to find local and national providers, commercial finance brokers, and professional advisers who could introduce them to the right kind of lender. Existing directories only provide partial coverage. The FLA believes there might be a role here for the British Business Bank to fill current gaps.

3.5. The FLA welcomes the Department of Business, Innovation and Skills creation of a lenders’ working party to explore the practicalities of implementing the loan referral system. We have been invited to join the working party and look forward to contributing to its work.

4. Recommendations

4.1. We would like the members of the Small Business, Enterprise and Employment Bill Committee to consider the following questions:

· What procedures will be put in place to ensure that customer consent has been obtained before credit data is shared?

· How will the banks know which online platform to use when referring a customer?

· How will conflicts of interest be dealt with if the owner of an online platform also is a provider of finance?

· How will the online platforms ensure they are matching the small businesses concerned with the right finance providers?

· Will the Government consider establishing a definitive directory of all UK finance providers to help SMEs source the right finance solution?

October 2014

Prepared 31st October 2014