With bank lending failing to plug the gap in funding for many small businesses, the government is increasingly looking to alternative means of finance to help the UK economy recover. As such, new regulatory changes for some platforms are being investigated, which will hopefully encourage both investors and businesses to explore different means of finance.
Some of the funding platforms that will be centre of attention during this regulatory shake up will be crowd funding platforms which allow investors to provide funding directly to businesses. Currently, they are not subject to the same regulation as bank loans and thus could be vulnerable to collapse, especially if something were to go wrong with a number of investments.
The new regulatory measures, which are currently being discussed in the House of Lords and will look to impose tighter control on the platform, will hopefully make crowd funding a more secure way of finance.
There are also wider reforms being discussed. The Financial Services Authority will be scrapped and replaced by two bodies, the Financial Conduct Authority and the Prudential Regulation Authority which will look beyond financial services and look into wider competition in the market.
New regulations will mean that these alternative forms of finance will be subject to similar control as bank loans, hopefully putting investors’ minds at ease that their money will be safely protected.
Any improvement to the alternative lending environment is a positive step, especially with banks still not cutting it when it comes to small business lending. The government has already endorsed invoice finance as a key way for SMEs to get access to funds, but hopefully with this new regulation other forms of alternative finance will be more available to a greater number of businesses.