The rise in popularity of credit cards among small businesses should trigger a radical reform of the Small Firms Loan Guarantee (SFLG) scheme, the Federation of Small Businesses (FSB) has claimed.
According to a survey of the FSB’s membership, the number of small firms using credit cards for finance has risen from 18 per cent to 25 per cent over the past two years.
Over the same period, entrepreneurs’ use of bank loans has fallen from 44 per cent to 30 per cent.
The FSB said that the research revealed that modern-day businesses need flexible and fast access to finance, something which the SFLG has failed to provide, the lobby group claimed.
According to the FSB, the SFLG, which helps firms secure bank loans, is overly-bureaucratic, with businesses often waiting up to six months for notification of whether applications have been successful.
Delays also occur during the approval process, with both the banks and the government required to rubber-stamp applications. The FSB said that the government should be ‘taken out of the loop’, leaving banks to make decisions about loans.
The FSB pointed out that with the SFLG currently under review, this was an ideal opportunity for ministers to reform the scheme and make it as attractive as credit cards when attempting to raise finance.
Neil Hamper, of the FSB, said: “There are important lessons to be learnt from the increasing popularity of credit cards, notably that businesses are not able to wait six months to get their hands on funds.
“The government must take a step back from the Small Firms Loan Guarantee scheme, but also continue to encourage banks to offer more loans.”
